Homebuilders Worry About Affordability Even After Lumber Prices Drop

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Home construction rose in June, but permits for news projects fell in the industry beset by high material costs and labor shortages
Home construction rose in June, but permits for news projects fell in the industry beset by high material costs and labor shortages

Homebuilders’ sentiments are at a fresh high after the price of lumber fell sharply, but there are still concerns about whether newly built homes will remain affordable enough for possible buyers.

On Monday, new results were released by the National Association of Home Builders/Wells Fargo Housing Market Index, which measures sentiments among home builders that showed it rise one point to 76. This was a five-month high for the industry and was driven primarily by the fall in lumber prices.

NAHB Chairman Chuck Fowke told CNBC that the results show some stability in the market with the cost of building material going downward. During the spring, lumber prices stood at $1,600 per thousand board after supply chains contracted sharply in the last year, but that price is now about $400.

In September 2020, homebuilder sentiment stood at 83 before going to 90 in November before falling when lumber prices soared.

However, Fowke pointed out that problems remain for the real estate sector. He noted that the ongoing shortage of workers has made it more difficult to construct new homes to meet current levels of demand or take advantage of the historically low mortgage rates offered.

Despite the COVID-19 pandemic, the demand for housing has remained high but the constraints on supply chains and shortage of labor have taken their toll. Today, the sector reports a shortage of single-family households that can be tied to building costs and developers not having enough available workers.

Whether or not prospective buyers can afford a house is another problem that will impact the market, said Fannie Mae economist Doug Duncan. If incomes do not keep pace with either interest rates or inflation, he says that it is expected to crimp demand and lead to a slowdown in the sector activity.

Inflation remains a concern for a number of Americans, who are divided in their beliefs on whether they believe it will last or not. The Federal Reserve has made clear that it is keeping in mind the growth in inflation to guide decisions on when it will cut or raise interest rates.

The Fed is set to convene Wednesday, but the central bank has signaled it may not raise interest rates.

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