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The National Association of Home Builders (NAHB)’s newly released NAHB/Wells Fargo Housing Market Index (HMI) for June 2018 shows a 2-point drop to 68 in homebuilder sentiment due to rising lumber prices—one of the factors affecting affordability of single-family housing construction.
The monthly HMI is a survey of NAHB members which measures the performance of the single-family housing market. Survey respondents answer questions regarding current market conditions for new home sales within the next 6 months, as well as their projections for prospective homebuyers.
Homebuilder sentiment for June dropped from 70 in May, but a reading above 50 is still considered positive. The current homebuilder sentiment is also above the reading from this time last year—the index was at 66 in June 2017. However, the index marks a significant change as the index has remained steadily in the 70s since last December.
While homebuilders are optimistic about demand for single-family housing, the rising cost of Canadian lumber, and other imported materials, has made construction of starter homes less affordable. The price of Canadian lumber has increased in the last year, in addition to recent tariffs that went into effect last year, due to high demand, wildfires and a shortage of rail transportation.
“Builders are optimistic about housing market conditions as consumer demand continues to grow,” stated NAHB Chairman Randy Noel to CNBC. “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.”
The increased price of materials, coupled with the high cost of land and labor, has forced homebuilders to focus on construction for move-up and luxury homes. This is a problem because there is a dire need for affordable starter homes and a shortage of existing homes for sale, causing home prices to accelerate.
As a result, prospective homebuyers looking to buy their first home are unable to afford homes on the market, while homebuilders cannot afford to build the homes within their price range.
This will especially hurt women prospective homebuyers who enter the market with a lower income than their male counterparts due to a variety of factors, including a gender pay gap, obstacles to career advancement and the “pink tax”—just to name a few. The NAWRB 2018 Women in the Housing Ecosystem Report (WHER) mentions the pressing issues regarding women’s homeownership and actionable solutions for addressing them.
Hope is on the horizon. Industry experts foresee increased economic growth, job creation and housing demand boosting construction of single-family homes within the upcoming months. It’s important for various organizations in the housing ecosystem, each with their own spheres of influence, to discuss this issue and collaborate on a solution that will allow more Americans to purchase their first homes—a necessary first step towards financial independence, stability and sanctuary. NAWRB is on the front lines of igniting these conversations for change.
Read NAHB and Wells Fargo’s new index here.