Builder confidence drops slightly as lumber prices climb

home builder constructing a wooden frame

As the price of lumber increased, builder confidence in the market for newly-constructed, single-family homes dropped slightly in June. According to the National Association of Home Builders/Wells Fargo Housing Market Index (HMI), builder confidence fell two points to 68, due in large part to the recent sharp rise of lumber costs in the U.S.; however, the June HMI reflects that overall confidence remains on solid ground.

“Builders are optimistic about housing market conditions as consumer demand continues to grow,” NAHB Chairman Randy Noel, a custom home builder from LaPlace, La, said in a recent NAHB press release. “However, builders are increasingly concerned that tariffs placed on Canadian lumber and other imported products are hurting housing affordability. Record-high lumber prices have added nearly $9,000 to the price of a new single-family home since January 2017.”

NAHB Chief Economist Robert Dietz also commented on the rising lumber prices but expressed confidence that demand for single-family home construction will likely remain strong.

“Improved economic growth, continued job creation and solid housing demand should spur additional single-family construction in the months ahead,” said NAHB Chief Economist Robert Dietz. “However, builders do need access to lumber and other construction materials at reasonable costs in order to provide homes at competitive price points, particularly for the entry-level market where inventory is most needed.”

About the HMI

The NAHB/Wells Fargo Housing Market Index gauges builder perceptions of current single-family home sales and sales expectations for the next six months as “good,” “fair” or “poor.” The survey also asks builders to rate traffic of prospective buyers as “high to very high,” “average” or “low to very low.” Each component is scored separately and then used to calculate a seasonally adjusted index where any score above 50 indicates that more builders view conditions as good than poor.

All three HMI indices dropped a single point in June. The index measuring current sales conditions fell to 75, the component gauging expectations in the next six months dropped to 76, and the metric charting buyer traffic declined to 50. Nevertheless, all three components remain at or above 50, indicating that more builders have a favorable view of current market conditions.

Regional Changes

Looking at the three-month moving averages for regional HMI scores, the Northeast increased two points to 57 while the scores for the West and Midwest remained unchanged at 76 and 65, respectively. The South dropped one point to 71.

 

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