Skip to Content

Home-builder confidence remains strong, but buyers should expect rising prices

Jacob Passy

'Low interest rates are supporting housing affordability in a market where the cost of most materials is rising'

The numbers: Despite a multitude of factors making construction more challenging, home builders remained confident in the state of the housing market, according to an industry trade group.

The National Association of Home Builders' monthly confidence index (link) held steady at a reading of 83 in May, the trade group said Monday.

Index readings over 50 are a sign of improving confidence. A year ago, the onset of the pandemic caused the index to drop below 50 in April and May, but confidence quickly rebounded as many Americans opted to resume their search for a new home last summer.

"Low interest rates are supporting housing affordability in a market where the cost of most materials is rising," said Robert Dietz, chief economist for the National Association of Home Builders (NAHB), in the report.

What happened: Of the three underlying components to the broader monthly report, the gauge of builders' expectations for home sales in the next six months improved. The index measuring builders' attitudes toward current sales conditions remained the same, while the component that measures traffic of prospective buyers decreased slightly.

On a regional basis, builder confidence improved in the South and held steady in the West, but decreased in the Northeast and Midwest to the lowest levels since August.

The big picture: The lack of existing homes for sale and the continuation of the low-rate environment are supporting interest in the market for new homes. But buyers and builders alike are facing price pressure that could complicate the feasibility of sales.

The aggregate material costs for home construction are up 12% compared to a year ago, and builders have indicated that they expect prices to move even higher. The short supply of lumber and steel used to construct homes is a major driver of these higher material costs, in particular.

Builders also face challenges in securing lots and labor in many markets, the NAHB warned. "Some builders are slowing sales to manage their own supply-chains, which means growing affordability challenges for a market in critical need of more inventory," Dietz said, adding that buyers should expect rising prices.

What they're saying: "The trend in homebuilding should remain upward due to rising employment, still-low interest rates, and a record-low supply of available homes in the resale market," said Sal Guatieri, senior economist at BMO Capital Markets, in a research note.

Market reaction: While the Dow Jones Industrial Average and the S&P 500 moved lower Monday morning, home builder stocks, including Lennar Corp. (LEN), Toll Brothers Inc. (TOL), D.R. Horton Inc. (DHI) and PulteGroup Inc. (PHM), saw larger declines immediately after the report's release.

-Jacob Passy; 415-439-6400;


(END) Dow Jones Newswires

05-17-21 1735ET

Copyright (c) 2021 Dow Jones & Company, Inc.

Transparency is how we protect the integrity of our work and keep empowering investors to achieve their goals and dreams. And we have unwavering standards for how we keep that integrity intact, from our research and data to our policies on content and your personal data.

We’d like to share more about how we work and what drives our day-to-day business.

We sell different types of products and services to both investment professionals and individual investors. These products and services are usually sold through license agreements or subscriptions. Our investment management business generates asset-based fees, which are calculated as a percentage of assets under management. We also sell both admissions and sponsorship packages for our investment conferences and advertising on our websites and newsletters.

How we use your information depends on the product and service that you use and your relationship with us. We may use it to:

  • Verify your identity, personalize the content you receive, or create and administer your account.
  • Provide specific products and services to you, such as portfolio management or data aggregation.
  • Develop and improve features of our offerings.
  • Gear advertisements and other marketing efforts towards your interests.

To learn more about how we handle and protect your data, visit our privacy center.

Maintaining independence and editorial freedom is essential to our mission of empowering investor success. We provide a platform for our authors to report on investments fairly, accurately, and from the investor’s point of view. We also respect individual opinions––they represent the unvarnished thinking of our people and exacting analysis of our research processes. Our authors can publish views that we may or may not agree with, but they show their work, distinguish facts from opinions, and make sure their analysis is clear and in no way misleading or deceptive.

To further protect the integrity of our editorial content, we keep a strict separation between our sales teams and authors to remove any pressure or influence on our analyses and research.

Read our editorial policy to learn more about our process.