As lumber prices stabilize, the future of homebuilding remains steady

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Published Date 10/18/2021

According to the latest National Association of Home Builders (NAHB) and Wells Fargo Housing Market Index (HMI) report based on a monthly survey of NAHB members the consensus was that confidence among homebuilders steadied over the past month despite continuing material and labor challenges.

Respondents are also asked to rate market conditions for the sale of new homes at the present time and in the next six months as well as the traffic of prospective buyers of new homes. HousingWire’s Brooklee Han reports, “Scores for each component of the survey are then used to calculate an index where any number over 50 indicates that more homebuilders view conditions as good to poor. After a three-month decline, homebuilder sentiment in the market for newly built single-family homes increased one point to 76 in September. This is two points higher than it was forecasted to be, but still seven points below where it was at the start of the year.”

She goes on to say that the NAHB believes that this apparent steadying is due to the easing of material prices, especially softwood lumber and adds that the job openings rate in construction is also trending higher. “In November 2020 the index hit an all-time high of 90, but it has been steadily declining ever since.”

NAHB Chief Economist Robert Dietz clarifies what is now happening: “The single-family building market has moved off the unsustainably hot pace of construction of last fall and has reached a still hot but more stable level of activity, as reflected in the September HMI. Exurban markets have expanded the most over the last year, although inner suburbs are now experiencing an acceleration, with townhouse construction having had the best quarter in 14 years this spring.”

In the end, however, it’s all about affordability, which Dietz says will be an important demand-side fact in the coming months due to rapidly rising home prices and construction costs. As for regional HMI scores, the three-month moving average for the Northeast fell two points to 72, the South and the West also dropped to 80 and 83, respectively, and the Midwest held steady at 68.

HousingWire, TBWS

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