Builder Confidence Holds Steady Amid Rising Cost Concerns
Builder confidence held stable in May, despite growing concerns over the price and availability of most building materials, including lumber, the National Association of Home Builders reported Monday.
The NAHB/Wells Fargo Housing Market Index reported builder confidence in the market for newly built single-family homes was unchanged at 83 in May. The index gauging current sales conditions held steady at 88, while the gauge charting sales expectations in the next six months rose one point to 81. The component measuring traffic of prospective buyers fell one point to 73.
Regionally, three-month moving averages showed the South rose one point to 84; the West held steady at 90; the Northeast fell four points to 8; the Midwest posted a three-point drop to 75.
“Builder confidence in the market remains strong due to a lack of resale inventory, low mortgage interest rates and a growing demographic of prospective home buyers,” said NAHB Chairman Chuck Fowke, a custom home builder from Tampa, Fla. “However, first-time and first-generation home buyers are particularly at risk for losing a purchase due to cost hikes associated with increasingly scarce material availability.”
NAHB Chief Economist Robert Dietz said with labor and lot availability a challenge in many markets, home buyers should expect rising prices throughout 2021 as the cost of materials, land and labor continue to rise.
“Low interest rates are supporting housing affordability in a market where the cost of most materials is rising,” Dietz said. “In recent months, aggregate residential construction material costs were up 12 percent year-over-year, and our surveys suggest those costs are rising further. Some builders are slowing sales to manage their own supply-chains, which means growing affordability challenges for a market in critical need of more inventory.”
On Friday, the Mortgage Bankers Association’s monthly Builder Applications Survey reported mortgage applications for new home purchases decreased by 9 percent from March but improved by 30.8 percent from a year ago. By product type, conventional loans composed 72.9 percent of loan applications, FHA loans composed 15.8 percent, RHS/USDA loans composed 1.0 percent and VA loans composed 10.3 percent. The average loan size of new homes increased from $374,353 in March to $377,434 in April.
This morning, HUD and the Census Bureau release the April New Residential Construction report on housing starts, permits and completions; on Friday, the National Association of Realtors releases its April Existing Home Sales report.
MBA Chief Economist Mike Fratantoni will provide commentary and analysis on both reports in MBA NewsLink.