Rising costs weigh on homebuilder confidence

U.S. homebuilders are concerned that limited land and rising costs for building materials and labor will slow sales in the short term.

Still, their outlook for sales over the next six months climbed to the highest level in more than six years — suggesting the obstacles could be temporary.

The National Association of Home Builders/Wells Fargo builder sentiment index released Monday fell this month to 42 from 44 in March. It was the third decline since January. Measures of customer traffic and current sales conditions both declined from March's reading.

Readings below 50 suggest negative sentiment about the housing market. The last time the index was at 50 or higher was in April 2006.

The recent declines come after the index had been trending hiring since October 2011, when it was 17.

Steady job creation, near record-low mortgage rates and rising home values have spurred sales over most of the past year. New-home sales fell in February after climbing to the highest level in more than four years the previous month.

In response to the improving demand, builders have stepped up home construction. They broke ground on single-family homes at the highest annual rate in 4 ½ years in February.

Still, the sudden rise in home construction follows a severe and prolonged downturn. And the effects of the crisis are now crimping the recovery.

During the roughly six years since the housing bubble burst, some 1.4 million residential construction jobs vanished, while land development — when raw land is prepared for home construction — slowed sharply.

In addition, suppliers of building materials sharply reduced their stockpiles and have been slow in adjusting to the resurgent demand for lumber and other goods.

As a result, homebuilders are facing higher construction costs and heated competition for ready-to-build land. They're also paying more for labor, because many of the subcontractor firms that builders rely on are scrambling to find experienced workers, many of which have long since moved on to other types of jobs.

Many smaller builders also are having a difficult time getting loans to buy land.

"Supply chains for building materials, developed lots and skilled workers will take some time to re-establish themselves following the recession, and in the meantime builders are feeling squeezed by higher costs and limited availability issues," said David Crowe, the NAHB's chief economist.

Despite the hurdles, builders have grown more optimistic about sales this year. In this month's confidence survey, builders' outlook for sales over the next six months rose three points to 53. That's the highest reading since May 2006, when it was 55.

In the near term, builders' confidence dimmed since last month. A gauge of current sales conditions fell two points to 45, the lowest level since October. A measure of traffic by prospective buyers fell four points to 30, back to where it stood in September.

The latest builder confidence index, based on responses from 322 builders, comes as the critical spring home-selling season is under way.

Though new homes represent only a fraction of the housing market, they have an outsize impact on the economy. Each home built creates an average of three jobs for a year and generates about $90,000 in tax revenue, according to NAHB statistics.