Spike in lumber and land prices causes homebuilder confidence to fall from epic high

Real Estate

A contractor moves roofing material on a home under construction at the Toll Brothers Cantera at Gale Ranch housing development in San Ramon, Calif.

David Paul Morris | Bloomberg | Getty Images

Just two months ago, homebuilders had never been happier. Buyer demand, driven by the pandemic-induced desire for larger newer homes in the suburbs, had homebuilder sentiment at an all-time high. Now the rising cost of getting homes built is making builders less optimistic.

Builder confidence in the market for single-family homes fell 3 points in January to 83, according to the NAHB/Wells Fargo Housing Market Index (HMI). Anything above 50 is considered positive. Two months ago, the index hit a record high of 90. In January 2019, before the pandemic struck, it was at 75.

“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,” said NAHB Chairman Chuck Fowke, a homebuilder from Tampa, Florida.

Of the index’s three components, current sales conditions dropped 2 points to 90. Sales expectations in the next six months fell 2 points to 83 and buyer traffic fell 5 points to 68.

“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.”

On a three-month moving average for regional HMI scores, sentiment in the Northeast fell 6 points to 76. It rose 2 points to 83 in the Midwest. In the South, sentiment fell one point to 86 and in the West it dropped one point to 95.

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