Higher construction costs and supply shortages, along with rising home prices, pushed builder confidence to its lowest reading since July 2020, according to the most recent National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index (HMI). Builder sentiment in the market for newly built single-family homes fell five points to 75 in August.

“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 Chuck Fowke, NAHB chairman and a custom home builder from Tampa, Fla. “Policymakers need to find long-term solutions to supply-chain issues.”

“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 Robert Dietz, chief economist for NAHB. “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.”

Derived from a monthly survey that NAHB has been conducting for 35 years, the NAHB/Wells Fargo HMI gauges builder perceptions of current single-family home sales and sales expectations for 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.

The HMI index gauging current sales conditions fell five points to 81, and the component measuring traffic of prospective buyers also posted a five-point decline to 60. The gauge charting sales expectations in the next six months held steady at 81. Looking at the three-month moving averages for regional HMI scores, the Northeast fell one point to 74, the Midwest dropped two points to 68, the South posted a three-point decline to 82, and the West registered a two-point drop to 85.

Additional details about the HMI are available at www.nahb.org/hmi.