Two leading indicators for construction forecasting registered opposing measures recently—one pointing to a downturn in builder confidence, while the other indicates more construction projects could be on the way for multi-family.

The National Association of Home Builders (NAHB) announced that builder confidence reached a 13-month low, according to the NAHB/Wells Fargo Housing Market Index (HMI). Builder sentiment in the market for newly-built single-family homes fell five points to 75—the lowest mark since July 2020. Derived from a monthly survey, HMI gauges builder perceptions of current single-family home sales and sales expectations for the next six months as “good,” “fair” or “poor.” On an opposing note, the American Institute of Architects’ (AIA) Architecture Billings Index (ABI) recorded its sixth consecutive positive month, indicating “very strong business conditions,” including for new design contracts. The ABI score for July was 54.6, down slightly from June, but still a positive indicator for billings, which serve as a key indicator for future demand. Any score above 50 denotes an increase in billings from the prior month. The score for new design contracts remained stable from June to July at 58, while multi-family residential came in at 54.7.

“In prior business cycles, architecture firms generally saw their project work soften quickly and then recover slowly,” said AIA chief economist, Kermit Baker, Ph.D. “So the strength of this recovery is unprecedented. Firm leaders who have leaned into this economic upturn by reinvesting in their firms by hiring staff and upgrading their technology, will likely have a better year than those that anticipated a slower recovery.”

Officials for NAHB attribute a decline in builder confidence to higher construction costs and supply shortages, along with home prices that continue to rise. Among three-month moving averages for regional HMI scores, the Northeast fell one point to 74, the Midwest dropped two points to 68, the South posted a three-point decline to 82 and the West fell by two points to 85.

“Buyer traffic has fallen to its lowest reading since July 2020 as some prospective buyers are experiencing sticker shock due to higher construction costs,” said NAHB Chairman Chuck Fowke. “Policymakers need to find long-term solutions to supply-chain issues.”

The survey conducted for HMI also asks builders to rate traffic of prospective buyers as “high to very high,” “average” or “low to very low.” The resulting index for current sales conditions fell five points to 81 in August, along with a five-point drop in the measure for traffic of prospective buyers, which fell to 60. Despite those changes, expectations for sales over the six months ahead remained at 81.

“Despite a drop in new home starts, new home sales have been able to increase somewhat because of buyers’ pent-up demand and the slight influx of completed inventory that was able to hit the market in mid-summer,” says Kelly Mangold, principal for RCLCO Real Estate Consultants in Bethesda, Md. At the same time, it’s unlikely that this figure will “grow meaningfully,” she says, until uncertainties about costs and delivery times can be sorted out, “because supply-chain issues and other constraints will continue to moderate the pace of deliveries and sales.” While interest for home buying continues to flourish, those issues have suppressed levels of home building and even put a hold on some sales, says NAHB chief economist Robert Dietz, though the association expects production bottlenecks to ease in the coming months, bringing the market back to more normal conditions, he adds.

Even with current challenges, “Still, it is promising that the overall trend in home sales is up from prior years and that the recent drop in sales has begun to reverse,” Mangold suggests. “This means that new home deliveries are coming closer to matching the demand generated by household growth.” That’s a mark the U.S. housing market hasn’t seen since the Great Recession, she says.