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Real Estate

The West showing the most promise as builder confidence returns to record high

But "staggering" increase in lumber prices could dampen momentum in the fall, NAHB warns

The National Association of Home Builders and Wells Fargo Housing Market Index rose six points to 78 in August – matching its previous high record set in December of 1998, according to a release from NAHB on Monday. Based on a scale from zero to 100, the 35-year-old index gauges builder perceptions of current single-family home sales and sales expectations for the coming six months.

All HMI indices experienced gains in August, including current sales conditions, sales expectations and traffic of prospective buyers. Regionally, the West saw the greatest increase in confidence in the three-month moving averages – jumping 15 points to 78. Following suit, the South rose 12 points to 71, the Northeast jumped 20 points to 65 and the Midwest increased 13 points to 63.

According to NAHB Chief Economist Robert Dietz, single-family construction is benefiting from low interest rates and a shift in housing demand to suburbs, exurbs and rural markets, which are heating up as renters and buyers seek more affordable and low-density neighborhoods. However, buyers looking to relocate may be surprised as recent data from Redfin reported urban dwellers leaving the city are raising home prices in rural areas.

“Housing has clearly been a bright spot during the pandemic and the sharp rebound in builder confidence over the summer has led NAHB to upgrade its forecast for single-family starts, which are now projected to show only a slight decline for 2020,” Dietz said.

According to Dietz, the demand for new single-family homes continues to be strong, as low interest rates and a focus on the importance of housing has stoked buyer traffic to all time-highs. This sentiment is further evidenced by Buildfax’s July data that single-family housing authorizations, existing housing activity and maintenance volume all experienced month-over-month increases towards a “healthier housing stock.”

Despite residential construction employment being raised by 24,000 in July, the NAHB is worried that recent growth in the construction sector may be thwarted by soaring lumber prices and supply shortages.

“The V-shaped recovery for housing has produced a staggering increase for lumber prices, which have more than doubled since mid-April. Such cost increases could dampen momentum in the housing market this fall, despite historically low interest rates,” Dietz said.

In April, the HMI experienced its greatest single monthly change in the history of the index when builder confidence fell to 30 – the first time confidence had been below 50 since June of 2014.

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