Homebuilder sentiment improves after sharp drop in lumber prices

Home builders in the single-family construction market are feeling better as lumber prices are falling from sky-high levels and buyer demand increases.

Builder sentiment rose one point in September to 76, according to the National Association of Home Builders / Wells Fargo Housing Market Index. It was the first increase in three months.

Sentiment was at 83 in September last year, then set a record 90 last November. It then fell dramatically as lumber prices soared and supply chain issues hampered construction.

“Data for September shows stability as some challenges related to the cost of building materials ease, particularly for softwood lumber. However, delivery times remain long and the chronic construction labor shortage is expected to persist as the global labor market recovers, ”said NAHB President Chuck Fowke.

Lumber hit over $ 1,600 per thousand board feet this spring, but the most recent price was around $ 400.

Across the three components of the index, current selling conditions increased by one point to 82. Buyer traffic increased by 2 points to 61, and sales expectations over the next 6 months remained stable to 81.

“The single-family construction market has abandoned the unsustainable pace of construction last fall and reached a still high but more stable level of activity, as evidenced by the HMI in September,” said Robert Dietz, economist in head of the NAHB. “While challenges with building materials persist, the rate of cost growth has slowed for some products, but the rate of job vacancies in construction tends to increase. ”

The biggest hurdle for builders in the coming months will be affordability, as they are forced to raise prices in order to keep up with construction costs. Buyers still benefit from the help of low mortgage rates, but if rates start to rise, the pressure on their portfolios will intensify.

Mortgage giant Fannie Mae has just cut its forecast for new home sales in the fourth quarter from 846,000 units to 789,000 units (annualized), citing supply problems as well as high house prices.

“Affordability remains a challenge, even with mortgage rates close to historic lows; if the pace of income growth does not keep pace with inflation and interest rates rise more than expected, we expect real estate activity to slow down from our current projections, ”said Doug Duncan, economist in chief of Fannie Mae.

Regionally, on a three-month moving average, constructor sentiment in the Northeast fell 2 points to 72. In the South it fell 2 points to 80 and also fell 2 points in the region. West at 83. The Midwest was unchanged at 68.