Headwinds Push Down March Home Builder Sentiment

Despite high buyer traffic and strong demand, builder sentiment fell in March as rising lumber and other material prices pushed builder confidence lower, the National Association of Home Builders reported yesterday.

The NAHB/Wells Fargo Housing Market Index reported builder confidence in the market for newly built single-family homes fell two points to 82 in March. The HMI index gauging current sales conditions fell three points to 87 while the component measuring sales expectations in the next six months increased three points to 83. The gauge charting traffic of prospective buyers held firm at 72.

Looking at the three-month moving averages for regional HMI scores, the Northeast rose two points to 80, the Midwest fell one point to 80, the South dropped two points to 82 and the West posted a three-point loss to 90.

“Though builders continue to see strong buyer traffic, recent increases for material costs and delivery times, particularly for softwood lumber, have depressed builder sentiment this month,” said NAHB Chairman Chuck Fowke. “Supply shortages and high demand have caused lumber prices to jump more than 200% since last April. Policymakers must address building material supply chain issues to help the economy sustain solid growth in 2021.”

“Builder confidence peaked at a level of 90 last November and has trended lower as supply-side and demand-side factors have trimmed housing affordability,” said NAHB Chief Economist Robert Dietz. “While single-family home building should grow this year, the elevated price of lumber is adding approximately $24,000 to the price of a new home. And mortgage interest rates, while historically low, have increased about 30 basis points over the last month. Nonetheless, the lack of resale inventory means new construction is the only option for some prospective home buyers.”

On Tuesday, The Mortgage Bankers Association’s Builder Applications Survey data for February showed mortgage applications for new home purchases increasedby  9.2 percent from a year ago, but fell by 9 percent from January, unadjusted for typical seasonal patterns.

MBA estimated new single-family home sales at a seasonally adjusted annual rate of 748,000 units in February, based on data from the BAS, a decrease of 17.3 percent from the January pace of 905,000 units. On an unadjusted basis, MBA estimated 65,000 new home sales in February , a decrease of 5.8 percent from 69,000 new home sales in January.

This morning, HUD and the Census Bureau release the monthly New Residential Construction report showing February data for housing starts, permits and completions.