Solid demand buoys homebuilder confidence

Cost factors, supply chain issues, and regulatory risks remain huge concerns

Solid demand buoys homebuilder confidence

Builder confidence in the market for newly built single-family homes increased in February, according to the National Association of Home Builders.

The NAHB/Wells Fargo Housing Market Index (HMI) edged up one point to 84 despite supply challenges and skyrocketing lumber prices. NAHB said that strong buyer demand helped offset these issues.

“Lumber prices have been steadily rising this year and hit a record high in mid-February, adding thousands of dollars to the cost of a new home and causing some builders to abruptly halt projects at a time when inventories are already at all-time lows,” said NAHB Chairman Chuck Fowke. “Builders remain very focused on regulatory and other policy issues that could price out households seeking new homes in a tight market this year.”

NAHB chief economist Robert Dietz echoed Fowke’s concerns, predicting that some builders may not be able to expand production due to these headwinds.

“Demand conditions remain solid due to demographics, low mortgage rates and the suburban shift to lower-cost markets, but we expect to see some cooling in growth rates for residential construction in 2021 due to cost factors, supply chain issues, and regulatory risks,” he said.

The HMI index measuring current sales conditions remained unchanged at 90, while the component measuring sales expectations in the next six months dropped three points to 80. The gauge charting traffic of prospective buyers climbed four points to 72.

Regionally, the Northeast HMI increased two points to 78, the Midwest was down one point to 81, the South fell two points to 84, and the West experienced a two-point loss to 93.