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Uptick in Costs, COVID-19 Cases Shakes Builder Confidence

January 21, 2021

Builders are less confident about the outlook in new-home construction than in recent months due to a major surge in lumber prices and COVID-19 cases across the country. But buyer demand for new homes remains high nevertheless.

“Despite robust housing demand and low mortgage rates, buyers are facing a dearth of new homes on the market, which is exacerbating affordability problems,” says Chuck Fowke, chairman of the National Association of Home Builders. “Builders are grappling with supply-side constraints related to lumber and other material costs, a lack of affordable lots, and labor shortages that delay deliver times and put upward pressure on home prices. They are also concerned about a changing regulatory environment.”

The NAHB/Wells Fargo Housing Market Index showed a drop in the latest measures of builder sentiment—although builders’ outlooks on sales and traffic are still strong by long-term standards. This month’s index showed slight drops month over month in current sales conditions, builders’ sales expectations over the next six months, and buyer traffic. This is the second consecutive month that the index’s overall readings have dropped, though they are still well over 50, which indicates more builders are viewing conditions as “good” than “poor.” In January, the current sales condition component dropped to 90, sales expectations for the next six months fell to 83, and buyer traffic readings fell to 68.

“While housing continues to help lead the economy forward, limited inventory is constraining more robust growth,” says NAHB Chief Economist Robert Dietz. “A shortage of buildable lots is making it difficult to meet strong demand, and rising material prices are far outpacing increases in home prices, which, in turn, is harming housing affordability.”

Source: 
Builder Confidence Down on Rising Material Prices, Upsurge in COVID-19 Cases,” National Association of Home Builders’ Eye on Housing blog (Jan. 20, 2021)