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Growing inflation concerns and ongoing supply chain disruptions snapped a four-month rise in builder sentiment in the first month of 2022. The NAHB/Wells Fargo Housing Market Index (HMI), measuring builder sentiment in the market for newly built single-family homes, moved one point lower to 83 in January.

The HMI has hovered at the 83 or 84 level, the same rate as spring 2021, for the past three months. In this seasonally adjusted index, any number above 50 indicates that more builders view conditions as good than poor.

“Higher material costs and lack of availability are adding weeks to typical single-family construction times,” says NAHB chairman Chuck Fowke. “NAHB analysis indicates the aggregate cost of residential construction materials has increased almost 19% since December 2020. Policymakers need to take action to fix supply chains. Obtaining a new softwood lumber agreement with Canada and reducing tariffs is an excellent place to start.”

The HMI index gauging current sales conditions held steady at 90, the gauge measuring sales expectations in the next six months fell two points to 83, and the component charting traffic of prospective buyers also posted a two-point decline to 69.

Looking at the three-month moving regional scores, the Northeast fell one point to 73, the Midwest increased one point to 75, and the South and West each posted a one-point rise to 88, respectively.

“The HMI data was collected during the first two weeks of January and do not fully reflect the recent jump in mortgage interest rates,” says NAHB chief economist Robert Dietz. “While lean existing home inventory and solid buyer demand are supporting the need for new construction, the combination of ongoing increases for building materials, worsening skilled labor shortages, and higher mortgage rates point to declines for housing affordability in 2022.”