A building contractor works on a home under construction in the Norton Commons subdivision in Louisville, Kentucky, United States on Monday, March 8, 2021.

Luke Sharrett | Bloomberg | Getty Images

A monthly index measuring builders’ confidence in the single-family home market declined as builders faced rising interest rates and rising material costs, especially wood.

The National Association of Home Builders / Wells Fargo’s housing market index fell 2 points to 82 in March. Anything over 50 is considered positive sentiment. The index stood at 72 in March 2020 and hit a high of 90 in November.

The latest results suggest that the housing industry may enter a difficult period even if the economy picks up again.

“Although builders continue to see heavy buyer traffic, recent increases in material costs and lead times, especially for softwood, have depressed builders’ spirits this month,” said Chuck Fowke, chairman of NAHB, a Tampa, Fla., Contractor. “Supply bottlenecks and high demand have meant that lumber prices have increased by around 200% since last April.”

Of the three components of the index, current sales conditions fell 3 points to 87. Sales expectations rose 3 points to 83 over the next six months, and buyer traffic remained unchanged at 72.

A record low supply of homes for sale has resulted in the prices of existing and newly built homes rising rapidly. Higher costs for builders only exacerbate the situation as these costs are passed on to buyers. The average price for a newly built house rose by more than 5% in January compared to the previous year.

“While construction of single-family homes should grow this year, the increased price of lumber increases the price of a new home by about $ 24,000,” said Robert Dietz, chief economist at NAHB. “And mortgage rates, while historically low, have increased by about 30 basis points in the last month.”

Rising costs are particularly high for first-time buyers, as supply is lowest at the lower end of the market. Any rise in mortgage rates also throws some buyers off the market, not just because the monthly payments are higher, but because they no longer qualify for the loan in today’s tight credit market.

From a regional point of view, the mood of builders in the northeast rose by 2 points to 80 on a moving three-month average. In the Midwest it fell by 1 point to 80 and in the south by 2 points to 82. In the west, the mood fell by 3 points to 90.