Fears about construction costs, supply shortages, and concern over fast rising home prices acted to deflate builder confidence this month. The National Association of Home Builders (NAHB) says the NAHB/Wells Fargo Housing Market Index (HMI), a measure of its new home builders' sentiment about the market for newly constructed homes, fell 5 points this month to 75, the lowest it has been since June 2020.

"While the demographics and interest for home buying remain solid, higher costs and material access issues have resulted in lower levels of home building and even put a hold on some 'new home sales," said NAHB Chief Economist Robert Dietz. "While these supply-side limitations are holding back the market, our expectation is that production bottlenecks should ease over the coming months and the market should return to more normal conditions."

The HMI is derived from a survey NAHB conducts among its new home builder members. The survey, which has been conducted monthly for 35 years, asks for perceptions of current single-family home sales and sales expectations for those sales over the next six months as "good," "fair" or "poor." The survey also asks builders to rate traffic of prospective buyers as "high to very high," "average" or "low to very low." Scores for each component are then used to calculate a seasonally adjusted index where any number over 50 indicates that more builders view conditions as good than poor.

Both the component gauging current sales conditions and the one measuring prospective buyer traffic declined 5 points to 81 and 60, respectively. The component measuring sales expectations six months out was unchanged at 81.

"Buyer traffic has fallen to its lowest reading since July 2020 as some prospective buyers are experiencing sticker shock due to higher construction costs," said NAHB Chairman Chuck Fowke. "Policymakers need to find long-term solutions to supply-chain issues."

The three-month moving average dropped in all four regions. The Northeast fell 1 point to 74, the Midwest dropped from 70 to 68, the South posted a 3-point decline to 82 and the West was down 2 points to 85.