Builder confidence in the new home market is finishing 2021 strong despite what the National Association of Home Builders (NAHB) says are inflation concerns and ongoing production bottlenecks. The NAHB/Wells Fargo Housing Market Index (HMI) edged higher for the fourth consecutive month in December. Strong consumer demand and limited existing inventory drove it to 84, 1 point higher than it was in November. This ties with February for the highest reading of the year.

NAHB economist Robert Dietz says the most pressing issue for the housing sector remains lack of inventory. Building has increased but the industry faces constraints, namely the cost and availability of materials, labor, and lots. And while 2021 single-family starts are expected to end the year 24 percent higher than the pre-Covid 2019 level, the higher interest rates expected in 2022 will put a damper on housing affordability.

The HMI is derived from a monthly survey that NAHB has been conducting for 35 years. It asks NAHB new home builder members for their perceptions of current single-family home sales and expectations for sales over the next six months as "good," "fair" or "poor." The survey also asks builders to rate traffic of prospective buyers as "high to very high," "average" or "low to very low." Scores for each component are then used to calculate a seasonally adjusted index where any number over 50 indicates that more builders view conditions as good than poor.

Both the index gauging current sales conditions and the one charting traffic of prospective buyers rose 1 point to 90 and 70 respectively. The component measuring sales expectations in the next six months held steady for the third consecutive month at 84.

Regional scores are given as three-month moving averages. The Northeast's index rose 4 points to 74, the Midwest posted a 2-point gain to 74 and the South and West each posted a 3-point rise to 75 and 87, respectively.