Home-Builder Confidence Wanes Amid Ongoing Shortages of Workers and Materials

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The numbers: While home builders are still more upbeat regarding the real-estate market than they were a year ago, shortages of workers and construction material have not let up.

Consequently, the National Association of Home Builders’ monthly confidence index fell one point to a reading of 80 in July, the trade group said Monday.

“Builders are contending with shortages of building materials, buildable lots and skilled labor as well as a challenging regulatory environment,” Robert Dietz, the association’s chief economist, said in the report.

“This is putting upward pressure on home prices and sidelining many prospective home buyers even as demand remains strong in a low-inventory environment,” he added.

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

What happened: The main index is based on three underlying indices and regional indices. The index that gauges the traffic of prospective buyers saw a pronounced decline, dropping six points to 65. Another index, which measures current sales conditions, fell one point to 86, while the index of sales expectations over the next six months actually increased two points to 81.

Regionally, the only part of the country that didn’t see a drop in confidence was the South, where it held steady at the same level as in June. Confidence fell the most in the Northeast, where the index fell four points to 75.

What they’re saying: “Apart from the higher readings during the fourth quarter of last year, this is the highest range since the home builders’ survey started in 1985,” said Michael Gregory, deputy chief economist at BMO Capital Markets, in a research note.

Market reaction: Home-builder stocks, including Lennar Corp., Toll Brothers Inc.,  D.R. Horton Inc., and PulteGroup Inc., experienced declines Monday morning, roughly in line with the S&P 500 Index and the Dow Jones Industrial Average.

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