Housing Inventory and Rising Lumber Prices

Housing Starts, which measure the start of construction on homes, fell 10.3% in February and 9.3% year over year. Starts on single-family homes were also down almost 9% from January to February and were pretty flat compared to February of last year. Bad weather across the US is the likely culprit for the decline.

Building Permits, which measure future construction, dropped nearly 11% from January to February but they were 17% higher year over year. Permits on single-family homes likewise fell 10% in February but they are up 15% year over year, signaling that help is on the way for the low inventory many buyers are facing.

Also of note, housing units that are authorized but not yet started for single-family homes are up 36% year over year.

The National Association of Home Builders Housing Market Index, which is a real-time read on builder confidence, dropped 2 points in March to 82, coming in slightly lower than expectations. However, any reading above 50 signals expansion, meaning builder sentiment remains well above that level and still near the highest levels on record. The main reason for the drop in confidence this month was costs, as rising lumber prices are adding approximately $24,000 to the cost of building a new home.

Breaking down the three components of the index, current sales conditions decreased by 3 points to 87, but given that they were coming off a flaming hot reading of 90, a pullback was expected. Future sales expectations increased by 3 points to 83, and buyer traffic remained stable at 72.

Remember that not long ago the reading for buyer traffic was below 50, so putting the numbers in perspective, future expectations and buyer traffic remain very strong even with the record low levels of inventory and rising rates we are seeing.

Information provided by MBS Highway Weekly Newsletter