September 18, 2021

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Home Finishes First

Rising Material Costs, Surging COVID-19 Cases Dampen Builder Optimism

4 min read

After months of record high levels to cap off 2020, builder optimism in the housing market has started to decline— at least according to the latest National Association of Home Builders/Wells Fargo Housing Market Index. The HMI— a monthly survey measuring home builders’ perception of housing market conditions— fell three points from December 2020 to January 2021, coming in at a lower-than-expected but still strong score of 83.



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According to the NAHB, there were two main factors that contributed to this lower level of builder optimism: rising prices for construction materials (and in particular lumber) and the continued spread of COVID-19 across the United States.

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NAHB chairman Chuck Fowke shared some of his thoughts on the HMI in a recent statement, describing some of the conditions that he believes contributed to the drop in score.

“Despite robust housing demand and low mortgage rates, buyers are facing a dearth of new homes on the market, which is exacerbating affordability problems,” said Fowke. “Builders are grappling with supply-side constraints related to lumber and other material costs, a lack of affordable lots and labor shortages that delay delivery times and put upward pressure on home prices.”

Lumber prices have been a major issue for homebuilders since the start of the pandemic, with prohibitive price spikes complicating building and driving up housing affordability. According to Bloomberg, lumber futures hit record highs on Tuesday of this week, a strong indicator that physical lumber prices are due to increase even more in the coming months.

“Everyone knows that current prices are stupid but the choice is either pay up or run out,” Vince Bulic, president of Vancouver-area Yaletown Lumber Industries Ltd., told Bloomberg. “Comfortable prices do not seem to be on the near-term horizon.”

NAHB chief economist Robert Dietz also shared his perspective on the issues impacting housing affordability in the U.S.

“While housing continues to help lead the economy forward, limited inventory is constraining more robust growth,” said 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.”

The January HMI was down from December in all four regions of the U.S., suggesting that these concerns are nationally prevalent and not just impacting particular areas of the country. The northeast, midwest, south, and west all saw declines, coming in at scores of 68, 81, 82, and 92, respectively.

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