Builders: High Demand Offsets Higher Costs – for Now

By Kerry Smith

Despite a recent criticism of fast-rising lumber prices, builders’ confidence in Feb. rose one point to 84, a near-record high with 50 considered neither good nor bad.

WASHINGTON – Strong buyer demand helped offset supply-chain challenges – notably a surge in lumber prices – in the builder confidence index gauging attitudes for newly built single-family homes.

The February index inched up one point to 84, according to the latest National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index (HMI). A score of 50 is generally considered a balance between optimism and pessimism.

“Lumber prices have been steadily rising this year and hit a record high in mid-February, adding thousands of dollars to the cost of a new home and causing some builders to abruptly halt projects at a time when inventories are already at all-time lows,” says NAHB Chairman Chuck Fowke, a custom home builder from Tampa. “Builders remain very focused on regulatory and other policy issues that could price out households seeking new homes in a tight market this year.”

Overall, however, strong buyer demand appears to have boosted builders’ attitudes and offset fears of market challenges.

“Demand conditions remain solid due to demographics, low mortgage rates and the suburban shift to lower-cost markets, but we expect to see some cooling in growth rates for residential construction in 2021 due to cost factors, supply chain issues and regulatory risks,” says NAHB Chief Economist Robert Dietz. “Some builders are at capacity and may not be able to expand production due to these headwinds.”

The index gauging current sales conditions held steady at 90, while the component measuring sales expectations over the next six months fell three points to 80. The gauge charting traffic of prospective buyers rose four points to 72.

Looking at the three-month moving averages for regional scores, the Northeast rose two points to 78, the Midwest fell one point to 81, the South dropped two points to 84, and the West posted a two-point loss to 93.

The NAHB/Wells Fargo HMI gauges builder perceptions of current single-family home sales and sales expectations for 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.

© 2021 Florida Realtors® Reprinted with Permission.

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