Builders’ sentiment has dropped to a 10-month low as development prices elevate costs

By dailywow On Jun 16, 2021

Home owner sentiment fell to its lowest level since August in June as construction costs drove up new home prices, sidelined buyers and made it difficult for some builders to obtain credit.

The National Association of Home Builders / Wells Fargo’s housing market index fell 2 points to 81 from a recent record high of 90 last November. Anything over 50 is still considered positive.

“Higher costs and declining availability of softwood and other building materials depressed builders’ mood in June,” said NAHB chairman Chuck Fowke, a home builder from Tampa, Florida. “These higher costs have pushed some new homes beyond potential buyers’ budgets, slowing the rapid pace of home construction.”

Although wood prices are down about 10% from their most recent high, they are still about 300% above the 15-year average. The cost of other construction products is also higher, and deliveries are still delayed, all due to ongoing supply chain issues from the pandemic.

These higher costs are passed on to buyers. The median price of a newly built home in April, the most recent value, was 20% higher than a year earlier, according to the US census. This not only leads to a price out of buyers, but also causes valuation problems for smaller builders, who make up two thirds of the housing construction market.

“You need an appraisal to get the bank loan, but the appraisal for the final house sale price is lower than your costs, as the appraisals tend to lag behind in market prices (and construction costs),” said Robert Dietz, chief economist for the NAHB. “The low rating means that you either need more equity or cannot continue using the loan.”

Of the three components of the sentiment index, current sales conditions fell 2 points to 86. Sales expectations over the next six months fell 2 points to 79, and buyer traffic also fell 2 points to 71.

At the regional level, sentiment rose by 1 point to 85 on a three-month moving average, while in the west it fell by 1 point to 89. It fell 3 points to 72 in the Midwest and 5 points to 78 in the Northeast.