Builders Start Blaming Waning Confidence on Material Prices Just Before Lumber Prices Fall

NAHB/Wells Fargo Housing Market Index shows builder confidence dip to its lowest level since last August, but research supporting those numbers was done before lumber prices had convincingly tumbled

06152021 Hmi
National Association of Home Builders

Rising material prices and supply-chain shortages resulted in builder confidence dipping to its lowest level since August 2020. The latest National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index (HMI) shows that builder confidence in the market for newly built single-family homes fell two points to 81 in June. A reading above 80 is, nevertheless, a signal of strong demand in a housing market lacking inventory.

NAHB’s statement on the monthly data release reads, “Higher costs and declining availability for softwood lumber and other building materials pushed down builder sentiment in June,” says Robert Dietz, chief economist for NAHB. “These higher costs have moved some new homes beyond the budgets of prospective buyers, which has slowed the strong pace of home building.

“Moreover, these supply-constraints are resulting in insufficient appraisals and making it more difficult for builders to access construction loans.”

Lumber, steel, plastics, gypsum, wallboard, insulation and cement prices have all been escalating for months, many setting records. Associated General Contractors’ data shows April input costs jumped 19% compared to the same month last year, up from the 12.4% annual increase recorded in March. U.S. Bureau of Labor Statistics data measured prices for lumber and plywood spiking 86% from April 2020 to April 2021.

The U.S. laid 24% tariffs on Canadian lumber in April 2017, which hurt demand, and some Canadian mills closed locations. Then the pandemic shattered labor and supply chains, while spurring a spike in residential remodeling and housing construction that drove lumber demand, and prices, off the charts.

"You are going to see this constriction for probably the next 12 to 18 months," quotes Thomas CEO Tony Uphoff saying. Uphoff runs a platform for product sourcing and supplier selection for the real estate industry. "What's unclear from any of the folks that track this is how much of this boom of residential housing real estate development will last."

In the June 13 story, Bisnow reports 56% of multifamily developers surveyed by the National Multifamily Housing Council between May 17 and June 1 reported delays caused by rising raw material prices and the overall economic infeasibility of new projects.

In an abrupt shift, however, a June 15 Bisnow post reports lumber prices dropping to the lowest level since March. The early-May record price of $1,711.20 per thousand board feet is now below $1,000 per thousand board feet for delivery in July.

The Wall Street Journal reports today, that lumber futures posted declines in 14 of the past 16 trading days (even as futures remain nearly three times what is typical for this time of year). The framing composite index by pricing service Random Lengths fell $122 to $1,324 as of Friday, the most it has ever fallen in a week.

Some lumber stockpilers are selling what they’ve stashed, providing additional pressure on prices. With copper prices drifting down from record highs and steel prices falling in China, construction economics, or at least the conversation about it, may shift significantly again soon.