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Builder Confidence Sinks to 13-Month Low

Data from the latest NAHB/Wells Fargo Housing Market Index (HMI) has shown that continued rising construction costs and supply shortages, along with an upswing in home prices, pushed builder confidence to its lowest reading since July 2020, as builder sentiment in the market for newly-built, single-family homes fell five points to 75 in August.

The NAHB noted that costs due to the price of materials continued to mount for new homes, as changes in the price of softwood lumber products that occurred between April 17, 2020 and July 8, 2021 have added $29,833 to the price of an average new single-family home.

“While the demographics and interest for home buying remain solid, higher costs and material access issues have resulted in lower levels of home building and even put a hold on some new home sales,” said NAHB Chief Economist Robert Dietz. “While these supply-side limitations are holding back the market, our expectation is that production bottlenecks should ease over the coming months and the market should return to more normal conditions.”

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.

“Buyer traffic has fallen to its lowest reading since July 2020 as some prospective buyers are experiencing sticker shock due to higher construction costs,” said NAHB Chairman Chuck Fowke. “Policymakers need to find long-term solutions to supply-chain issues.”

U.S. Senators Jerry Moran and Jeanne Shaheen, along with U.S. Secretary of Commerce Gina M. Raimondo recently converged to tackle the home building supply chain issue. The group discussed supply chain disruptions, recent price volatility, the shortage in availability of homes and potential areas for cooperation among stakeholders. Supply chain issues, compounded by tight inventory and high demand, is sending home prices to record new highs not seen since in 40-plus years.

“The volatility in the lumber market is pricing hundreds of thousands of potential homebuyers out of achieving the American dream of homeownership,” said Senator Moran. “Supply chain shortages caused by the pandemic have driven up the price of building and buying homes, and the threat of increasing countervailing duties on certain lumber imports from Canada threaten to exacerbate the situation.”

Regionally, looking at the three-month moving averages for regional HMI scores, the Northeast fell one point to 74, the Midwest dropped two points to 68, the South posted a three-point decline to 82 and the West registered a two-point drop to 85.

Earlier today, the U.S. Census Bureau and the U.S. Department of Housing & Urban Development (HUD) their new residential construction statistics for July 2021. Privately‐owned housing starts in July 2021 were at a seasonally-adjusted annual rate of 1,534,000, 7% (±8.9%) below the revised June estimate of 1,650,000, but 2.5% (±10.9%) above the July 2020 rate of 1,497,000. Single‐family housing starts in July 2021 were at a rate of 1,111,000, which was 4.5% (±9.9%) below the revised June figure of 1,163,000. The July rate for units in buildings with five units or more was 412,000.

On the other end of the spectrum, the Census Bureau and HUD found that privately‐owned housing completions in July were at a seasonally-adjusted annual rate of 1,391,000, 5.6% (±16.4%) above the revised June estimate of 1,317,000, and 3.8% (±14.4%) above the July 2020 rate of 1,340,000. Single‐family housing completions in July 2021 were at a rate of 954,000, 3.6% (±16.1%) above the revised June rate of 921,000. The July 2021 rate for units in buildings with five units or more was 426,000.

“While the softness in the starts pace is consistent with continuing reports from homebuilders describing supply chain disruptions and ongoing large construction backlogs, we believe the pace is finding a near-term bottom and will start to move upward in coming months,” said Mark Palim, Fannie Mae Deputy Chief Economist. “The less volatile permits measure declined only slightly for single-family units. Additionally, the number of single-family units currently under construction increased by 1.5% to the highest level since mid-2007, and completions moved up by 3.6%. This suggests that homebuilders are progressing through their order books, freeing up capacity to increase the pace of starts going forward. The most recent measure of new home sales showed a record share of homes being sold that were yet to be started. Combined with continued tight inventories of existing homes for sale and the recent decline in mortgage rates, we believe there to be continued strong demand for construction starts.”

About Author: Eric C. Peck

Eric C. Peck has 20-plus years’ experience covering the mortgage industry, he most recently served as Editor-in-Chief for The Mortgage Press and National Mortgage Professional Magazine. Peck graduated from the New York Institute of Technology where he received his B.A. in Communication Arts/Media. After graduating, he began his professional career with Videography Magazine before landing in the mortgage space. Peck has edited three published books and has served as Copy Editor for Entrepreneur.com.
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