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As prices rise, builder confidence falls from record highs

The South, West and Midwest all continued to climb, though the Northeast struggled in December

After three successive months of record highs, the National Association of Home Builders and Wells Fargo Housing Market Index measuring builder confidence fell four points to 86 in December. Though the index fell from it’s 35-year series high, it is still the fourth month in its history the score broke 80.

In December, all HMI indices, including current sales conditions, sales expectations and traffic of prospective buyers, also fell four points from their previous highest recorded readings in November.

Regionally, the West continued to show the greatest promise, with builder confidence in the three-month moving averages jumping up two points to 96 – a nearly perfect score as regional confidence gains continue to slow from August’s double-digit spikes with builder confidence levels nearing their upper limit.

The South also climbed one point to 87, as did the Midwest up to 81. The Northeast, however, slipped down a point to 78.

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Robert Dietz, chief economist for NAHB, said the issues that have limited housing supply in recent years, including land and material availability and a persistent skilled labor shortage, will continue to place upward pressure on construction costs.

“As the economy improves with the deployment of a COVID-19 vaccine, interest rates will increase in 2021, further challenging housing affordability in the face of strong demand for single-family homes,” Dietz said.

But housing affordability is already showing a strain. The Case-Shiller index for home prices rose 7% in September from a year ago, the greatest year-over-year gain since 2014, and nearly 23% higher than its last peak in 2006.

According to the NAHB, the price of lumber isn’t helping builder confidence either. NAHB chairman Chuck Fowke said while housing demand remains strong, affordability challenges are the byproduct of low inventory and high construction costs. On Dec. 9, Random Lengths reported lumber prices were $650 per thousand board – 20% higher than the four weeks leading up to the report.

“Policymakers should take note to avoid increasing regulatory costs associated with land development and residential construction,” Fowke said.

To help tame rising prices, the U.S. Commerce Department’s International Trade Administration published an administrative review of anti-dumping duties in late November, followed by an administrative review of countervailing duties on Dec. 1, the NAHB reported.

The effect of the reviews is that duties on shipments of Canadian lumber into the United States, which currently stand at 20%, will be reduced by more than half, to roughly 9% – a step Fowke said is in the right direction.

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