Homebuilder Confidence Dips Due to Rising Rates and Costs

March 19, 2021

Homebuilder Confidence Dips Due to Rising Rates and Costs

A monthly index that measures the confidence of homebuilders involved in the single-family housing market - The National Association of Home Builders/Wells Fargo Housing Market Index – fell 2 points in March to 82. Notably, any rating above 50 signals positive sentiment among builders. The index stood at 72 one year ago and 90 in November.

The March report underscores market strength and an optimistic outlook for the industry, evidenced by a 3-point jump (to 83) in sales expectations for the next six months. However, homebuilders and analysts are closely watching two developing trends that could slow the industry’s strong momentum –rising interest rates and increasing material costs.

Home prices – already buoyed by strong demand since the onset of the coronavirus pandemic – could well move higher as builders pass rising costs on to homebuyers. According to data compiled by the National Association of Home Builders, the median price of a new home sold in January was more than 5% higher than one year ago.

According to Chuck Fowke, a Tampa-based builder and Chairman of the NAHB, “Supply shortages and high demand have caused lumber prices to jump about 200% since last April.” Robert Dietz, the NAHB’s Chief Economist, points out, “The elevated price of lumber is adding approximately $24,000 to the price of a new home (of 2,000 square feet).”

Further impacting home affordability is the recent rise in interest rates. Dietz says, “Mortgage interest rates, while historically low, have increased about 30 basis points (0.3 percentage points) over the last month.” Last week, the number of applications for home refinancing loans was down 5% compared to the previous week, according to the Mortgage Bankers Association. In fact, for the first time since March 8, 2019, refinance applications numbered below year-ago levels.

The past year has seen a huge surge in home remodeling across the U.S., and of course, rising lumber prices impact home remodeling projects as well as new-home construction. So today, renovation contractors and DIYers are also facing higher costs than just one year ago. Aggravating the supply-demand imbalance, some lumber mills scaled back production in 2020, skeptical that demand would stay strong in the face of Covid-19, and in some cases, forced to limit output in order to comply with local social distancing regulations and mandates.

This homebuilding and home remodeling news update is presented by the Butcher Block Co. – an Ecommerce firm focused on high-quality wood countertops for new-home construction and kitchen remodels. Recently, the Butcher Block Co. was forced to pass on to consumers price increases on John Boos butcher block countertops, as well as its own line of butcher block and plank countertops.

For more information, please visit Butcher Block Co.

Contact Info:
Name: Kathleen Grodsky
Organization: Butcher Block Co.
Address: 10448 N 21st Pl Phoenix, Arizona 85028
Phone: (877) 845-5597