Potential buyers flooded into model homes across the nation,
and that has builders feeling better about their business than at any time over
the past 20 years.
But rising lumber prices could sap the market’s momentum
this fall.
Builder confidence in the newly built, single-family home
market jumped 6 points to 78 in August on the National Association of Home
Builders/Wells Fargo Housing Market Index. Anything above 50 is considered
positive sentiment.
The index is now at the highest level in the 35-year history
of the monthly series and matches the record set in December 1998. Builder
sentiment plunged to 30 in April, when the coronavirus pandemic shut down the
U.S. economy, but it recovered quickly as consumers suddenly sought more space
in less urban areas.
“The demand for new single-family homes continues to be
strong, as low interest rates and a focus on the importance of housing has
stoked buyer traffic to all-time highs as measured on the HMI,” said NAHB
Chairman Chuck Fowke. “However, the V-shaped recovery for housing has produced
a staggering increase for lumber prices, which have more than doubled since
mid-April. Such cost increases could dampen momentum in the housing market this
fall, despite historically low interest rates.”
The cost of lumber is soaring not only because of increased
demand but because mills shut down in April and May and did not expect to see
the kind of strong demand they’re seeing now. There have also been issues with
transportation and labor.
Of the index’s three components, current sales conditions
rose 6 points to 84. Sales expectations in the next six months increased 3
points to 78, and buyer traffic jumped 8 points to 65, its highest level in the
history of the survey.
Builders are clearly benefiting from the severe shortage of
existing homes for sale. There were too few homes to meet demand even before
the pandemic struck, and now fewer homeowners are willing to list their homes
for sale.
Mortgage rates dropped to a record low to start August but
pushed higher last week, as Treasury yields rose and mortgage giants Fannie Mae
and Freddie Mac increased fees to lenders. Unless rates really break much
higher, which is unlikely, the latest increase is unlikely to throw much cold
water on the strong demand for housing.
“Housing has clearly been a bright spot during the pandemic
and the sharp rebound in builder confidence over the summer has led NAHB to
upgrade its forecast for single-family starts, which are now projected to show
only a slight decline for 2020,” said NAHB chief economist Robert Dietz.
“Single-family construction is benefiting from low interest rates and a
noticeable suburban shift in housing demand to suburbs, exurbs and rural
markets as renters and buyers seek out more affordable, lower density markets.”
Regionally, on a three-month moving, builder sentiment in
the Northeast jumped 20 points to 65, in the Midwest it rose 13 points to 63.
In the South sentiment increased 12 points to 71 and in the West it rose 15
points to 78.
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