Lumber prices have been steadily rising this year and hit a record high in mid-February, adding thousands of dollars to the cost of a new home and causing some builders to abruptly halt projects at a time when inventories are already at all-time lows. Builders remain very focused on regulatory and other policy issues that could price out households seeking new homes in a tight market this year. While prices are a concern in both the new and existing home markets, there appears to be very little pullback in buyer demand. Of the index’s three components, current sales conditions held steady at 90, and traffic of prospective buyers rose 4 points to 72. Sales expectations in the next six months, however, fell 3 points to 80.
Demand conditions remain solid due to demographics, low mortgage rates and the suburban shift to lower-cost markets, but we expect to see some cooling in growth rates for residential construction in 2021 due to cost factors, supply chain issues and regulatory risks. Some builders are at capacity and may not be able to expand production due to these headwinds. Regionally, on a three-month moving average, builder sentiment in the Northeast rose 2 points to 78, and fell 1 point to 81 in the Midwest. In the South it dropped 2 points to 84 and in the West decreased 2 points to 93.