Stock Groups

Homebuilder sentiment improves after a big drop in lumber prices


Contractors work on the roof of a house under construction in the Stillpointe subdivision in Sumter, South Carolina, U.S., on Tuesday, July 6, 2021.

Bloomberg | Bloomberg | Getty Images

Homebuilders in the single-family construction market are feeling better, as lumber prices are way down from sky-high levels and buyer demand is growing.

The National Association of Home Builders/Wells Fargo Housing Market Index reported that builders’ sentiment rose by one point from September to 76. This was the third consecutive increase.

In September last year, sentiment was at 83. It then reached a new record of 90 in November. After lumber prices rose and construction was hampered by supply chain problems, sentiment fell dramatically.  

The September data shows stability, despite some challenges in building materials such as softwood lumber. Chuck Fowke, Chairman of NAHB, stated that delivery times are still long and that the labor shortage in construction will continue to exist as the labor market recovers.

The price of lumber reached over $1,600 for a thousand square feet in spring. However, the most recent price was around $400.

The current sales situation for each of the three index components rose 1 point to 82. In the past six months, sales forecasts for 81 and buyers traffic went up 2 percentage points each to 61.

Robert Dietz, Chief Economist at NAHB, stated that the single-family market for building has moved away from the unsustainablely high pace of construction last fall. He now expects a hotter but less volatile level of activity as shown in September’s HMI. While there are still challenges in building materials, some products have seen their cost increases slow down, while the number of construction job openings is rising. 

In the next months, affordability will remain a major challenge for builders as they have to increase prices to meet construction costs. Low mortgage rates are helping buyers, however, if rates rise the pressure on their pockets will increase.

Fannie Mae, the mortgage giant, just reduced its fourth quarter sales estimates from 846,000 to 789,000 (annualized), citing high prices and supply issues.

Fannie Mae chief economist Doug Duncan stated that affordability remains a problem, even though mortgage rates are near their historic lows. If income growth slows and interest rates go up more than anticipated, then housing activity will likely slow.

On a 3-month moving average, Northeast builder sentiment fell to 72. The South saw a drop of 2 points, to 80. It also dropped 2 percent in the West, to 83. It remained at 68 in the Midwest.