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Homebuilder sentiment drops slightly amid inflation concerns

The HMI fell to 83 in January

After four consecutive months of increases, homebuilder confidence in the market for newly built single-family homes fell one point in January to 83, according to the National Association of Home Builders (NAHB) and Wells Fargo Housing Market Index (HMI), which was released on Tuesday.

The NAHB/HMI report is based on a monthly survey of NAHB members, in which respondents are asked to rate market conditions for the sale of new homes at the present time and in the next six months as well as the traffic of prospective buyers of new homes. Scores for each component of the survey are then used to calculate an index where any number over 50 indicates that more homebuilders view conditions as good than poor.

For the past three months, homebuilder sentiment has hovered around the 83 to 84 level, roughly the same rate as it was in the spring of 2021.

While consumer demand remains high, experts say that growing inflation concerns, as well as ongoing supply chain disruptions, contributed to the index’s slight decrease.

“Higher material costs and lack of availability are adding weeks to typical single-family construction times,” NAHB chairman Chuck Fowke said in a statement. “NAHB analysis indicates the aggregate cost of residential construction materials has increased almost 19% since December 2021.”

After three months of decline, homebuilder confidence began to steady in September 2021, eventually rising to 84 in December 2021, which was still six points lower than the all-time high set in November 2020.

NAHB chief economist Robert Dietz says that labor and supply shortages, as well as rising interest rates, will negatively impact housing affordability this year, but the current lack of existing home inventory and solid buyer demand will continue to support the need for new construction.

The HMI index gauging current sales conditions remained at 90, while the gauge measuring sales expectations for the next six months dropped two points to 83. Also showing a two point drop was the component charting traffic of prospective buyers which fell to 69.

Regionally, the three-month moving averages for regional HMI scores dropped one point in the Northeast to 73, and increased one point in the Midwest, South and West, bringing the regional indexes to 75, 88 and 88, respectively.

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