Homebuilder sentiment is at a record high as buyers continue to flood the housing market.

Homebuilder sentiment is at a record high as buyers continue to flood the housing market, according to CNBC.

However, rising lumber prices could humble the housing market's confidence. According to the National Association of Home Builders and the Wells Fargo Housing Market Index, builder confidence in the single-family home market surged 6 points to 78 in August. The index is now at its highest level in the 35-year history and is equal to the record set in December 1998.

In April, builder sentiment fell to 30 as the coronavirus crisis reached peak fear levels. However, as consumers started to retreat from urban areas, the index recovered.

“The demand for new single-family homes continues to be strong, as low interest rates and a focus on the importance of housing has stoked buyer traffic to all-time highs as measured on the HMI,” said NAHB Chairman Chuck Fowke. “However, the V-shaped recovery for housing has produced a staggering increase for lumber prices, which have more than doubled since mid-April. Such cost increases could dampen momentum in the housing market this fall, despite historically low interest rates.”

The cost of lumber has drastically increased due to an influx of demand and mills reopening after being shut down in April and May.

The index is composed of three parts.

  • Current sales increased 6 points to 84.
  • Sales expectations increased 3 points to 78.
  • Buyer traffic increased 8 points to 65.

Builders have been capitalizing on the shortage of homes for sale right now. Mortgage rates reached a record low at the beginning of August but increased recently. Treasury yields started to rise and Fannie Mae and Freddie Mac contributing to the increase in mortgage rates.

“Housing has clearly been a bright spot during the pandemic and the sharp rebound in builder confidence over the summer has led NAHB to upgrade its forecast for single-family starts, which are now projected to show only a slight decline for 2020,” said NAHB chief economist Robert Dietz. “Single-family construction is benefiting from low interest rates and a noticeable suburban shift in housing demand to suburbs, exurbs and rural markets as renters and buyers seek out more affordable, lower density markets.”

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Economics, Finance and Investing