Homebuilder sentiment declines to an eight-month low

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Sentiment among homebuilders deteriorated to an eight-month low in July on concerns about higher material costs, according to data Tuesday from the National Association of Home Builders/Wells Fargo.

The Builders' Housing Market Index decreased to 64 (the estimate 67) from 66 in June (revised from 67). The measure of the six-month sales outlook dropped to a five-month low of 73 from 75. The index of current sales fell to 70, the weakest since November, from 72.

Builders are faced with a tough choice when dealing with higher materials costs such as lumber — either raise prices on homes or absorb the added expense. While they see demand remaining strong, an acceleration in prices on new homes risks putting some properties out of reach. Stable sales and construction mean housing will probably do little to add to economic growth.

"Our members are telling us they are growing increasingly concerned over rising material prices, particularly lumber," NAHB Chairman Granger MacDonald, a homebuilder and developer from Kerrville, Texas, said in a statement. "This is hurting housing affordability even as consumer interest in the new-home market remains strong."

"Builders will need to manage some increasing supply-side costs to keep home prices competitive," Robert Dietz, chief economist at NAHB, said in the statement.

Readings greater than 50 indicate more respondents reported good market conditions. The gauge of prospective-buyer traffic fell to 48, the lowest since February, from 49. Confidence decreased in two of four regions, led by a five-point drop in the South to the lowest in a year.

Bloomberg News