Apparently, “sheltered-in-place” has made people rethink their housing options. In a strong signal that housing is leading the economic recovery, builder confidence in the market for newly-built single-family homes increased five points to hit an all-time high of 83 in September 2020, according to the latest NAHB (National Assn. of Home Builders) Wells Fargo HMI (Housing Market Index). The previous highest reading, of 78, was set last month matching the last high in December 1998.
The shift in interest to homes in the suburbs is keeping builders busy, supported on the demand side by low interest rates. Traffic numbers have builders seeing positive market conditions, but many are worried about rising costs and delays for building materials, especially lumber. The recent spike in softwood lumber prices has caused the price of an average new single-family home to increase by $16,148 since April 17. Similarly, the price of the average new multifamily home has increased by $6,107.
One concern has been the lumber tariffs placed on Canada by the Trump Administration in 2017. More domestic lumber production or tariff relief is needed to avoid a slowdown in the market in the coming months, claims NAHB. In February 2020, with lumber prices rising steadily since June 2019, a preliminary decision by the U.S. Dept. of Commerce to reduce duties by August on shipments of Canadian lumber into the United States was good news for home builders and home buyers.
Currently, duties average more than 20% on Canadian lumber shipments into the United States. After conducting an administrative review, the Dept. of Commerce issued a proposal in the Federal Register that could lower the countervailing and antidumping duties to just over 8%. However, on August 24, a WTO (World Trade Organization) panel ruled mainly in Canada’s favor and against the United States in the long-running dispute over pricing, shipments, and alleged subsidies of softwood lumber. The Trump Administration reacted strongly to the WTO judgement, saying in effect that they would not honor it. As of now, the tariffs remain at 20%.
Beyond lumber, prices of several other building inputs continue to rise, and average delivery times for many are growing. Such constraints in the supply chain will slow the growth rate for single-family construction and remodeling in the coming months.
Of course, the reason for these supply shortfalls is that housing remains in high demand. New home sales surged in July, increasing 14% and reaching a post-Great Recession high of 901,000 at a seasonally adjusted annual rate. Inventory fell to a lean four-month supply.
New home prices are expected to rise due to increases in home size and building material costs. Similar trends were witnessed for the resale market, where the National Association of Realtors’ pending home sales index increased almost 6% in July and was estimated to be more than 15% higher than a year ago. Home price growth has been strong, with the Case-Shiller Index up 5.5% year-over-year in July.
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