2020 ended on a high note for building starts, but the huge upsurge in lumber prices and subsequent material price hike, along with a resurgence of the coronavirus across much of the nation has pushed builder confidence down three points to 83 in January. That’s according to the latest NAHB/Wells Fargo Housing Market Index (HMI) released this week.

“Despite robust housing demand and low mortgage rates, buyers are facing a dearth of new homes on the market, which is exacerbating affordability problems,” said NAHB chairman Chuck Fowke, a custom home builder from Tampa, Fla. “Builders are grappling with supply-side constraints related to lumber and other material costs, a lack of affordable lots and labor shortages that delay delivery times and put upward pressure on home prices. They are also concerned about a changing regulatory environment.”

And concerns abound. Those rising lumber prices and increasing regulatory cost concerns could affect future production. While a recent report from the U.S. Department of Housing and Urban Development and the U.S. Census Bureau points to a solid, double-digit gain in single-family starts, overall housing starts increased 5.8 percent to a seasonally adjusted annual rate of 1.67 million units, and overall number, single-family starts increased 12.0 percent to a 1.34 million seasonally adjusted annual rate, the multifamily sector—which includes apartment buildings and condos—decreased 13.6 percent to a 331,000 pace. Total housing starts for 2020 were 1.38 million, a 7.0 percent gain over the 1.29 total from 2019. Single-family starts in 2020 totaled 991,000, up 11.7 percent from the previous year, but multifamily starts in 2020 were again the weak link, down 3.3 percent from the previous year for a total of 389,000.

“The 1.34 million single-family starts pace in December is the highest since September 2006,” said NAHB chief economist Robert Dietz. “And while NAHB is forecasting further production increases in 2021, the gains will tempered by ongoing supply-side challenges related to material costs and delivery times, a dearth of buildable lots and regional labor shortages that continue to exacerbate affordability woes.”

Building materials and related supply chain issues aren’t the only shortages facing the residential building industry.

“While housing continues to help lead the economy forward, limited inventory is constraining more robust growth,” Dietz continued. “A shortage of buildable lots is making it difficult to meet strong demand and rising material prices are far outpacing increases in home prices, which in turn is harming housing affordability.”

Ultimately, there’s some wariness within the building industry going into the first quarter of 2021.

“Builder concerns about a changing regulatory landscape may have triggered many to move up their plans to pull permits and put shovels to the ground,” said Fowke. “Our latest builder sentiment survey suggests somewhat softer numbers ahead due to rising building costs and an uncertain regulatory climate.”

All three major HMI indices fell in January. The HMI index gauging current sales conditions dropped two points to 90, the component measuring sales expectations in the next six months fell two points to 83 and the gauge charting traffic of prospective buyers decreased five points to 68.

Looking at the three-month moving averages for regional HMI scores, the Northeast fell six points to 76, the Midwest was up two points to 83, the South fell one point to 86 and the West posted a one-point loss to 95.
On a regional and year-to-date basis (January through December of 2020 compared to that same time frame a year ago), combined single-family and multifamily starts are 13.2 percent higher in the Midwest, 7.5 percent higher in the South, 6.2 percent higher in the West and 2.8 percent lower in the Northeast.

Overall permits increased 4.5 percent to a 1.71 million unit annualized rate in December. Single-family permits increased 7.8 percent to a 1.23 million unit rate. Multifamily permits decreased 3.0 percent to a 483,000 pace.
Looking at regional permit data on a year-to-date basis, permits are 7.4 percent higher in the Midwest, 7.3 percent higher in the South, 2.1 percent higher in the West and 5.2 percent lower in the Northeast.

HMI tables can be found at nahb.org/hmi. More information on housing statistics is also available at Housing Economics PLUS (formerly housingeconomics.com).

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