Eye on the Economy
Builder Confidence Surges Amid Lumber Price Increases
Home builder confidence in the market for newly built single-family homes increased five points in September, reaching an all-time high of 83, according to the NAHB/Wells Fargo Housing Market Index. Historic traffic numbers have builders seeing positive market conditions, but many in the industry are worried about rising costs and delays for building materials, especially lumber. Lumber prices are up more than 170% since mid-April, adding more than $16,000 to the price of a typical new single-family home.
The strong demand for housing is, in part, fueled by improving labor market conditions. In August, total payroll employment rose by 1.4 million and the unemployment rate fell to 8.4%, better than NAHB forecasted. Residential construction employment rose by 27,700 in August to 2.9 million. Total construction industry employment (including both residential and nonresidential) rebounded to 7.2 million in August. However, nonresidential construction employment declined by 5,500, underscoring the different fortunes of housing vs. non-housing construction. Nonetheless, there are 344,000 open construction sector jobs (according to the most recent data from July), down only slightly from a year ago. Builders continue to cite concerns regarding limited access to skilled labor, especially as they seek to satisfy the increased demand for home construction and remodeling.
In addition to the labor market, several other tailwinds are driving more demand for new homes. Some of the primary factors include evolving consumer preferences (particularly among Millennials), low interest rates, lean existing-home inventory, and a noticeable shift toward suburban areas. NAHB research published this month detailed the growth of residential construction in lower-density areas in the wake of the COVID-19 crisis. The “small metro suburb” was the only geographic category to post a gain for single-family construction during the second quarter. Also in that quarter, the share of apartment construction in low-density markets increased from 32.9% to 34%.