Builder Confidence Slumps Due to Soaring Material and Home Prices

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In its most recent monthly survey measuring builders’ sentiment regarding the market for newly constructed single-family homes, the National Association of Home Builders/Wells Fargo Housing Market Index (HMI) revealed a 5-point drop in builder confidence to 75 in August 2021, marking the nadir of a 13-month decline.

The HMI asks builders to rate their perceptions of current single-family home sales and expectations for sales in the next six months, as well as their assessment of prospective homebuyer traffic. After making seasonal adjustments, the August survey revealed that although sales expectations for the next six months remained at 81, the indices addressing current sales and prospective-buyer traffic both fell five points to 81 and 60, respectively.

According to the National Association of Home Builders (NAHB), this erosion in builder confidence isn’t surprising given the skyrocketing costs of residential construction materials. The Bureau of Labor Statistics’ Producer Price Index (PPI) report indicates that prices for residential construction ex-energy materials rose 3% in June but ticked up by a mere 0.2% in July; however, residential construction inputs that include energy and food were up 0.6% in July and 22.3% on a year-over-year basis.

[Related: Home Depot, Buildertrend partner in web-based project and expense management tool]

Indeed, building material costs have increased 13% year to date, a significant contrast to the 1.1% price increase over the same period in 2020. Here’s how the figures break down for major residential construction products:

  • Steel: On the heels of a 6.2% June increase, steel product prices grew 10.8% in July. To put the accelerating costs in greater context, steel prices soared 108.6% in the last 12 months and 87.6% as of August in 2021. Notably, a monthly PPI increase greater than 10% for steel mill products occurred just three times in 80 years (1947, 1948 and 2008), but monthly increases in excess of 10% have occurred four times so far in 2021.
  • Softwood lumber: Though price volatility remains a threat, July marked the biggest monthly decline in the PPI (29%) for softwood lumber, a trend that began in the middle of May. Although the PPI has plunged 29.5% from its zenith, the index is still 71.9% higher than its level in January.
  • Gypsum: With prices up 2.5% in July and 15.8% year-to-date, gypsum product prices soared to 21.7% over the past 12 months.
  • Ready-mix concrete: After a slight increase of 1.1% in June, prices remained unchanged in July. When measured regionally, the Northeast and West realized ready-mix concrete price increases of roughly 20%, whereas prices grew by less than half that rate (9%) in the Midwest and South.

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