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Builder Sentiment Falls Amid Higher Material Costs, Interest Rates

HMI March 2021

Despite high buyer traffic and strong demand, builder sentiment fell in March as rising lumber and other material prices pushed builder confidence lower. The latest National Association of Home Builders/Wells Fargo Housing Market Index shows that builder confidence in the market for newly built single-family homes fell two points to 82 in March. 

"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," says Chuck Fowke, NAHB chairman. "Supply shortages and high demand have caused lumber prices to jump about 200 percent 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," says Robert Dietz, NAHB chief economist. "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."

The HMI index gauging current sales conditions fell three points while the component measuring sales expectations in the next six months increased three points. The gauge charting traffic of prospective buyers held firm.