Contractors are working on single family homes under construction in the Cadence Park development of the Great Park Neighborhoods in Irvine, California on Wednesday, April 14, 2021.

Bing Guan | Bloomberg | Getty Images

Strong demand from buyers keeps builders confident, but the rising cost of building materials is weighing on the affordability of housing.

According to the NAHB / Wells Fargo Housing Market Index, the mood of builders on the single-family home market remained unchanged at 83 in May. Anything over 50 is considered a positive mood.

The index had fallen to 37 last May when the pandemic hit and the real estate market closed. Things then rebounded dramatically in June and July as consumers rushed to buy suburban homes and sought more space to work and school from home.

Builders now say they continue to see a steady stream of buyers, in large part due to the extreme shortage of existing properties for sale. Persistently low mortgage rates contribute in part to affordability, but when prices rise rapidly, purchasing power weakens.

“First-time and first-generation home buyers are particularly at risk of losing a purchase due to the cost increases associated with decreasing material availability,” said Chuck Fowler, chairman of the National Association of Home Builders and home builders of Tampa, Florida.

According to the NAHB, the total cost of housing material has increased by 12% compared to the previous year, and these costs continue to rise. This is a critical problem not only for builders, but for the overall market.

“Some construction companies are slowing sales to manage their own supply chains, which means affordability is growing for a market in desperate need of more inventory,” said Robert Dietz, NAHB’s chief economist. “Homebuyers should expect prices to rise in the course of 2021 as the costs of materials, land and labor continue to rise.”

The current sales conditions of the three components of the index remained unchanged at 88. Sales expectations rose by 1 point to 81 over the next six months. Buyer traffic decreased by 1 point to 73.

On a moving three-month average, the client’s mood rose by 1 point to 84 in the south and remained unchanged at 90 in the west. Sentiment fell 4 points to 82 in the Northeast and 3 points to 75 in the Midwest.