Builder Confidence Dips as Inflation Concerns Loom

Builder confidence has remained steady over the past few months, but continuing supply chain issues and inflation concerns are hampering it.

According to the National Association of Home Builders, the cost of building materials (excluding energy) rose 1.5% in December. The report found that the cost of building materials rose 15.9% in 2021 and have increased 18.6% since December 2020. Specifically, softwood lumber grew 24.4% in December and is up 44.5% since September. Between 1947 and 2019, the monthly change in softwood lumber averaged 0.3%. Comparatively, the percent change has averaged 12% change since January 2020, a 75-year high. Prices for steel increased only 0.2% in December, the smallest monthly increase since September, showing a steady slowdown for the cost. However, 2021 saw more than an 80% increase in cost.

As reported earlier this month, inflation has hit a 39-year high, which is also a concern for the construction industry. Shelter was one of the biggest reasons the consumer price index rose so much, as it jumped 0.4%.

So where does this leave builders? While their confidence levels still remain high, the demand for housing surpasses their ability to keep up. In addition to inflation and rising mortgage rates, builders are still grappling with supply chain issues and a need for workers. However, in 2021, single-family starts rose 1.4% (about 1.7 million units), while multifamily were up 22.1%. Overall, housing starts were up 15.6% from 2020. Overall permits were up 9.1% in December, ending the year on a high note. Ultimately, NAHB predicts that remodeling and multifamily will see additional growth in 2022, while single-family home starts will remain stable.