More good news for home builders, this time on supply costs

Building supply costs held steady in June, reflecting broader inflation trends and helping contribute to improved industry sentiment this year.

The price of residential construction products and services, excluding energy, was unchanged from May, with the last monthly increase occurring in March this year, according to analysis from the National Association of Home Builders. In the previous two months, the price of supplies and other construction inputs had inched downward by 0.1% and 0.2%, respectively. Data, which comes from the Bureau of Labor Statistics' Producer Price Index, was not seasonally adjusted.

Year to date, the price of building materials have headed up marginally by 0.5%, in contrast to the rise reported in the first half of 2022 when supply costs accelerated 4.8%.

When volatile energy expenses are included, the cost of residential construction goods also flattened from May. But compared to a year ago, prices declined 3.6%, the largest annual drop since 2009.

Among individual supply components that make up the PPI, costs of softwood lumber and ready-mix concrete increased month to month but were offset by falling prices of other materials, NAHB said. 

Lumber prices climbed up for the second time in three months, rising 3.9% between May and June. The cost of lumber is now up by 7.2% since April. Despite the recent upswing, softwood lumber prices are still down 20.9% compared to a year ago and at less than half their levels during pandemic-impacted 2021.

Ready-mix concrete inched up 0.5% in June, rising for the 15th straight month, and is now 12.3% more expensive compared to June 2022. The annual increase varied across the country, from 8.5% in the Northeast to 16.4% in the Midwest. 

But prices for steel-mill and gypsum products headed downward. After climbing up for four straight months, costs of steel-mill goods slid 0.4% in June and remain 18% lower year over year, even with the early 2022 rise.

Meanwhile, gypsum-building materials continued their price pullback for the third straight month, falling another 0.3% in June, after a 1.1% decrease in both April and May. After a rapid and steep acceleration in 2021 and 2022, current cost levels are still 3% higher than they were a year ago.

Construction-supply costs and availability are among several factors behind a turnaround in the outlook for homebuilders this year. The NAHB's monthly index tracking building industry sentiment has increased each month in 2023, after economic conditions last year left the industry reeling. 

"Builders are feeling cautiously optimistic about market conditions given low levels of existing home inventory and ongoing gradual improvements for supply chains," NAHB Chairman Alicia Huey said in June.

The recent slowdown in supply costs also coincides with the deceleration of consumer inflation, which rose by 0.2% in June month over month and slowed to 3% from one year earlier.