The latest NAHB/Wells Fargo Housing Market Index (HMI) shows that housing is leading the economic recovery and that builder confidence in the market for newly-built single-family homes increased five points, now sitting at an all-time high of 83. In the 35-year history of the series, the previous highest reading was set last month, coming in at 78, tying with the highest number from December 1998. However, the positive gains are tempered by supply chain disruptions that include higher prices for popular materials.

“Historic traffic numbers have builders seeing positive market conditions, but many in the industry are worried about rising costs and delays for building materials, especially lumber,” said National Association of Home Builders (NAHB) chairman Chuck Fowke, a custom home builder from Tampa, Fla. “More domestic lumber production or tariff relief is needed to avoid a slowdown in the market in the coming months.”

NAHB chief economist Robert Dietz discussed the impact of the high cost of lumber on the industry as a whole.

“Lumber prices are now up more than 170 percent since mid-April, adding more than $16,000 to the price of a typical new single-family home,” he explained. “That said, the suburban shift for home building is keeping builders busy, supported on the demand side by low interest rates. In another sign of this growing trend, builders in other parts of the country have reported receiving calls from customers in high-density markets asking about relocating.”

Derived from a monthly survey, the NAHB/Wells Fargo Housing Market Index gauges builder perceptions of current single-family home sales and sales expectations for the next six months. It uses a matrix of “good,” “fair” or “poor,” and also asks builders to rate traffic of prospective buyers as “high to very high,” “average” or “low to very low.”

Scores for each component are then used to calculate a seasonally adjusted index where any number over 50 indicates that more builders view conditions as good than poor.

All the HMI indices posted their highest readings ever in September. The HMI index gauging current sales conditions rose four points to 88; the component measuring sales expectations in the next six months increased six points to 84; and the measure charting traffic of prospective buyers posted a nine-point gain to 73.

Looking at the three-month moving averages for regional HMI scores, the Northeast increased 11 points to 76; the Midwest went up nine points, to 72; the South rose eight points to 79; and the West finished at 85, seven points higher than before.