by Calculated Risk on 1/18/2022 10:05:00 AM

The National Association of Home Builders (NAHB) reported the housing market index (HMI) was at 83, down from 84 in December. Any number above 50 indicates that more builders view sales conditions as good than poor.

From the NAHB: Builder Confidence Edges Lower on Inflation Concerns

Growing inflation concerns and ongoing supply chain disruptions snapped a four-month rise in builder sentiment even as consumer demand remains robust. Builder confidence in the market for newly built single-family homes moved one point lower to 83 in January, according to the National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index (HMI). The HMI has hovered at the 83 or 84 level, the same rate as the spring of 2021, for the past three months.

Higher material costs and lack of availability are adding weeks to typical single-family construction times. NAHB analysis indicates the aggregate cost of residential construction materials has increased almost 19% since December 2021. 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 most pressing issue for the housing sector remains a lack of inventory. Building has increased but the industry faces constraints, namely cost/availability of materials, labor and lots. And while 2021 single-family starts are expected to end the year about 25% higher than the pre-Covid 2019 level, we expect higher interest rates in 2022 will put a damper on housing affordability.

It is worth noting that the HMI responses for the January survey were collected January 3 through January 13, with many responses collected before interest rates jumped last week. The impact of these higher rates will be more fully reflected in the February HMI.
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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 averages for regional HMI 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.

Click on graph for larger image.

This graph show the NAHB index since Jan 1985.

This was close to the consensus forecast, and a strong reading.