Rising lumber prices have been grabbing headlines for months, but building material shortages are widespread, pushing up the price of steel, concrete, gypsum and other products used in construction.
These surging prices caused homebuilder confidence in the single-family segment to fall to a reading of 81 in June, the lowest level since August 2020, according to the latest National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index (HMI).
Despite the downturn, demand for housing remains high due to a lack of supply in both the re-sale and new construction markets. Anything above 80 is indicative of “strong demand,” explains the report. The country is currently facing a shortage of 3.8 million homes just as Millennials — the largest generation in US history — are entering their prime household formation years.
Surging material prices are being passed onto homebuyers, causing some of them to step to the sidelines. NAHB Chairman Chuck Fowke says this has “slowed the strong pace of home building,” as fewer buyers are able to afford the inflated prices.
Homebuilders are feeling the squeeze in more ways than one. “These supply-constraints are resulting in insufficient appraisals and making it more difficult for builders to access construction loans,” added Fowke.
The HMI score for current sales conditions dropped two points to 86, while sales expectations in the next six months fell two points to 79. The index measuring foot traffic of prospective buyers also declined by two points to a reading of 71.
When broken down by region on a three-month moving average, builder confidence rose one point in the South to 85, fell one point in the West to 89, sank three points in the Midwest to 72, and declined five points in the Northeast to 78.
The slide in builder confidence recorded this month could be just a blip on the radar. On Monday, lumber prices dipped below $1,000 per thousand board feet for the first time in three months, according to Random Lengths, a company that tracks pricing information for wood products. This marks a 40 percent decline from the May 10th peak of $1,733.50 per thousand board feet.
While lumber prices are expected to decline further in late 2021 and into 2022, overall, prices will remain elevated until the supply of homes catches up to demand.