Homebuilder confidence keeps rising even as lumber prices surge by 193 percent – UW GROUP

Homebuilder confidence keeps rising even as lumber prices surge by 193 percent

Ultra-low inventory in the resale market is driving up demand for new construction homes, giving builders a confidence boost heading into the frenzied spring homebuying season. 

According to the National Association of Home Builders/Wells Fargo Housing Market Index (HMI), builder confidence in the newly-built single-family homes segment increased by one point to 83 in April. The HMI, which ranges from 0 to 100, peaked in November of last year with a reading of 90 but anything over 50 suggests favorable conditions.

New single-family home sales remained strong, rising one point to an HMI of 88. Prospective buyer traffic ticked up three points to a reading of 75, however, the component gauging sales expectations in the next six months declined by two points to 81.

When examined by region, the three-month moving average for the Northeast rose six points to 86, while the South recorded a one-point improvement to 83. The HMI for the Midwest dropped two points to 78 and the West maintained a score of 90.

Wavering confidence in the future of single-family home sales is tied to surging lumber prices, which have added $24,000 to the average price of a newly constructed home. Random Lengths, a company that tracks pricing information for wood products, reported last week that softwood lumber prices jumped 193 percent year-over-year to $1,048 per thousand board feet. The May futures price per thousand board feet is even higher at $1,158. 

The COVID-19 pandemic caused supply chain disruptions and sawmill closures just as Americans, stuck at home with little else to do, began to tackle renovation projects. The exploding demand for housing, attributed to low mortgage rates, changing lifestyle needs and the proliferation of remote work, has only exacerbated the problem as developers race to build new homes for hungry buyers.

Although US production has ramped up to meet the growing demand for softwood lumber, prices are expected to remain high for the foreseeable future. Developers who sold pre-construction homes to buyers looking to take advantage of low mortgage rates will begin construction in the coming months, and spring is historically the busiest time of year for undertaking home improvement projects.

A lumber price correction isn’t expected until Americans’ appetite for housing subsides, which is unlikely to happen until interest rates rise to their pre-pandemic levels.


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