U.S. homebuilding blew past expectations, jumping 6.3% in June, but permits for future home construction fell sharply for the third consecutive month as confidence among builders sank to the lowest level in nearly a year.
While the nation’s homebuilders are happy to see enthusiastic demand from buyers, higher construction costs, labor and materials shortages, and fewer buildable lots are starting to chip away at their confidence.
A monthly sentiment index from the National Association of Home Builders dropped 1 point to 80 in July, the lowest level in 11 months. The index hit a record high of 90 in November of last year. Anything above 50 is considered positive.
Jerry Howard, CEO of the National Association of Home Builders, told Yahoo Finance Live that despite the strong housing market, headwinds remain for the construction industry.
“The supply chain has never really come back from the Covid recession, and it’s impacted everything from lumber to appliances and wiring. Even tools that the builders need to get to build the homes are harder to come by and more expensive,” he said.
Lumber prices hit a record high in May of $1,670.50 per thousand board feet as saw mills struggled to keep up with torrid demand during the pandemic.
Since then, lumber prices have fallen by more than 50%, but builders and consumers have yet to see the savings. In fact, Howard says lumber prices are still up nearly 100% from the spring of 2020.
“There’s still a lot of that high-priced lumber still out in the market,” he said. “We expect by the middle of the fall that should be cleared out and hopefully we’ll have much more palatable prices for lumber at the retail level for builders to use.”
To be sure, not all lumber prices are falling. Oriented strand board, for example, which is a type of engineered wood product used for panels, is up 500% from pre-pandemic levels, due to supply chain issues.
Howard said the challenges have been so great, some homebuilders have had to turn away business, even going as far as returning customers’ deposits because they can’t get the materials or the skilled workers needed to get the job done.
“The only way to get the housing market back into control in terms of price appreciation, is to build more housing, and until we can get a consistent supply of building materials at a reasonable price,” Howard said, “we’re unable to build housing that’s affordable to most first-time home buyers.”
Howard called first-time homebuyers the “linchpin” of the housing market, and new data from Zillow found it now takes a full year longer to save for a down payment on a starter home than it did five years ago.
According to Zillow, if an average renter saves 10% of their income, it would take roughly six and a half years to save enough for a 20% down payment on a typical starter home priced at about $148,500.
“The people at the high end of the market, if they want a house built, they will pay whatever price they have to,” Howard said. “But that is a small part of the market, and it’s not the part that policymakers need to concern themselves with.”
Top officials from the Biden administration met with representatives from across the supply chain last week, including builders, loggers, lumber companies, real estate firms, and labor unions to discuss ways the government can help ease the pressure that has spurred a surge in home prices.
Biden announced the establishment of the Supply Chain Disruptions Task Force last month to address near-term supply challenges to the economic recovery in four areas, including homebuilding and construction.
“If they keep going down that path, real solutions will be proposed," Howard said. “I give them [the White House] credit for taking the first step. Now, it’s the first step in a long journey, but you’ve got to take the first step to get there.”
While he still sees some “dark clouds” ahead for homebuilders, Howard believes low mortgage rates and a strong economy will continue to support the housing market this year.
Alexis Christoforous is an anchor at Yahoo Finance. Follow her on Twitter @AlexisTVNews.
