Homebuilder sentiment soars to record high, but lumber prices raise a red flag

Real Estate

Sun Mountain Lumber Superintendent Nelson Bohrer walks past stacks of cut lumber at the saw mill September 12, 2019 in Deer Lodge, Montana.

Chip Somodevilla | Getty Images

With demand for housing surging, the nation’s homebuilders are positively ebullient.

Builder confidence in the market for single-family homes in September increased 5 points to 83 on the monthly NAHB/Wells Fargo Housing Market Index. That’s the highest reading in the survey’s 35-year history, which matched its last all-time high in August. Anything above 50 is considered positive. The index stood at 68 in September 2019.

All three of the index’s components rose to record highs. Current sales conditions rose 4 points to 88. Sales expectations in the next six months increased 6 points to 84. Traffic of prospective buyers increased 9 points to 73.

“The suburban shift for home building is keeping builders busy, supported on the demand side by low interest rates,” said NAHB Chief Economist Robert Dietz. “In another sign of this growing trend, builders in other parts of the country have reported receiving calls from customers in high-density markets asking about relocating.”

While housing demand is incredibly strong, builders continue to be dogged by a lack of skilled labor and finished lots. And now, there’s a new hurdle — fast-rising prices for lumber due to the Covid-19 crisis and the raging fires in the West.

“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,” said NAHB chairman Chuck Fowke, a homebuilder from Tampa, Florida. “More domestic lumber production or tariff relief is needed to avoid a slowdown in the market in the coming months.”

Lumber prices have jumped more than 170% since mid-April, adding more than $16,000 to the price of a typical new single-family home, according to the NAHB. Lumber producers shut down in March and April as the pandemic hit the U.S., and did not expect to see the quick surge in housing demand that began in late May. Ramping up production, while protecting workers with social distancing, was not easy, and supply suffered.

Now the Western fires are adding to the strain. Weyerhaeuser, the nation’s largest lumber producer, manages about 1.6 million acres of forests in Oregon and 1.3 million acres of forests in Washington. The company operates three mills in Oregon and two in Washington, with one building materials distribution center in each state.

According to a company release Tuesday, “Several of the fires have reached the company’s timberlands, but it is too soon to assess the affected acreage or potential business impact. The company will evaluate conditions on the ground when it is safe to do so and will provide more information as appropriate.”

Regionally, on a three-month moving average, builder confidence in the Northeast increased 11 points to 76 and rose 9 points to 72 in the Midwest. In the South, sentiment increased 8 points to 79 and in the West it jumped 7 points to 85.

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