Homebuilder confidence improves, despite record high lumber prices

Buyer demand for newly built homes continues to surge, and that is keeping builder confidence high even as building material prices climb.

Builder sentiment rose one point to 84 in February according to the latest National Association of Home Builders/Wells Fargo Housing Market Index (HMI) released Wednesday. Anything above 50 is considered positive sentiment. The index stood at 74 in February, 2020.

“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,” said NAHB Chairman Chuck Fowke, a custom home builder from Tampa, Florida. “Builders remain very focused on regulatory and other policy issues that could price out households seeking new homes in a tight market this year.”

While home prices are a concern in both the new and existing home markets, there appears to be very little pullback in buyer demand. Of the index’s three components, current sales conditions held steady at 90, and traffic of prospective buyers rose four points to 72. Sales expectations in the next six months, however, fell three points to 80.

“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,” said NAHB chief economist Robert Dietz. “Some builders are at capacity and may not be able to expand production due to these headwinds.”

Regionally, on a three-month moving average, builder sentiment in the Northeast rose two points to 78, and fell one point to 81 in the Midwest. In the South it dropped two points to 84 and in the West decreased two points to 93.