The nation’s homebuilders continue to be thrilled with buyer demand, but higher construction costs are starting to eat away at their confidence.

A monthly sentiment index from the National Association of Home Builders dropped 1 point to 80 in July. The index stood at 72 in July 2020. Anything above 50 is considered positive. The index hit a record high of 90 in November of last year.

“Builders continue to grapple with elevated building material prices and supply shortages, particularly the price of oriented strand board, which has skyrocketed more than 500% above its January 2020 level,” said NAHB Chairman Chuck Fowke, a homebuilder from Tampa, Florida.

While lumber prices have fallen by more than 50% in the lumber futures market, those savings have not yet trickled down to builders, remodelers or consumers. Supply chain issues, as well as low inventory with suppliers, are both keeping retail prices elevated.

Of the index’s three components, current sales conditions fell one point to 86. Buyer traffic declined 6 points to 65, and sales expectations in the next six months rose 2 points to 81.

“Builders are contending with shortages of building materials, buildable lots and skilled labor as well as a challenging regulatory environment. This is putting upward pressure on home prices and sidelining many prospective home buyers even as demand remains strong in a low-inventory environment,” said Robert Dietz, NAHB’s chief economist.

Regionally, on a three-month moving average, builder sentiment in the Northeast fell 4 points to 75. In the Midwest, it dropped 1 point to 71 and fell 2 points to 87 in the West. Builder sentiment in the South held steady at 85.