Amid rising material prices and supply chain shortages, homebuilder confidence in the U.S. unexpectedly decreased in the month of June, the National Association of Home Builders revealed in a report on Tuesday.

The report said the NAHB/Wells Fargo Housing Market Index fell to 81 in June from 83 in May. The drop surprised economists, who had expected the index to come in unchanged.

With the unexpected decrease, the housing market index slipped to its lowest level since hitting 78 in August of 2020.

However, the NAHB said the reading above 80 is still a signal of strong demand in a housing market lacking inventory.

“While builders have adopted a variety of business strategies including price escalation clauses to deal with scarce building materials, labor and lots, unavoidable increases for new home prices are pushing some buyers to the sidelines,” said NAHB Chief Economist Robert Dietz.

He added, “Moreover, these supply-constraints are resulting in insufficient appraisals and making it more difficult for builders to access construction loans.”

The unexpected drop by the housing market index reflected decreases by all three of the component indices.

The index gauging current sales conditions fell to 86 in June from 88 in May, the gauge charting sales expectations in the next six months dropped to 79 from 81 and the component measuring traffic of prospective buyers dipped to 71 from 73.

On Wednesday, the Commerce Department is scheduled to release a separate report on new residential construction in the month of May.

Housing starts are expected to jump by 3.9 percent to an annual rate of 1.630 million, while building permits are expected to rise by 0.4 percent to an annual rate of 1.740 million.

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