Single-family property builders are experiencing increasing expenses. This is leading to an increase in optimism for the new year.

According to the National Association of Home Builders/Wells Fargo Housing Market Index, (HMI), builders’ confidence dropped one point to 83 January. Any reading above 50 is positive. However, this is the first decrease in four months. In January 2021, the index was also at 83.

Chuck Fowke (NAHB Chairman), a Tampa-based homebuilder, stated that higher material prices and fewer availability have pushed up construction times by several weeks. According to NAHB, the average cost of residential building materials has gone up almost 19% in the past 12 months.

According to Random Lengths, the price of softwood lumber has increased by 85% over three months. Last spring saw lumber prices rise, then plummeted dramatically during the summer. After the U.S. increased tariffs on Canadian lumber, and Western wildfires disrupted timber production, they are back up. Other materials like gypsum or steel are also more expensive. Prices are rising due to a labor shortage that isn’t decreasing.

Current sales conditions were the only component of the index that was not affected by any other components. They were 90. The next six-month sales expectations fell by 2 points, to 83. Buyer traffic also fell by 2 points to 69.

Although builders are facing increased mortgage rates for the coming year, HMI data is not complete and was only collected in the first month of the month. It is currently about 50 basis point higher than the average 30-year fixed rate and 75 basis point higher than one year ago.

Robert Dietz is the chief economist of NAHB. He stated, “While there’s a good supply of homes for sale and solid demand for them, continuing increases in building materials and worsening skill labor shortages point to declining housing affordability by 2022.”