Economic Report: High lumber prices and other barriers choke the confidence of home builders and home buyers

Home builders are giddy about the soaring demand for new houses, but they’re not so happy about high lumber prices, labor shortages and other barriers in their way.

A survey of builders shows they are still very confident their business will improve, but they are not quite as optimistic as they were at the end of last year.

The National Association of Home Builders’ monthly confidence index slipped to 81 in June from 83 in May. That’s the lowest level in nine months.

Confidence took a huge hit during the early stages of the pandemic as sales briefly nosedived. Yet record low mortgage rates and the end of the nationwide lockdown led to an explosion in demand among home buyers. The index peaked at record 90 in November, well above the pandemic low of 37.

Index readings over 50 are a sign of improving confidence.

Home builders face lots of obstacles, however. High lumber prices have sharply increased the cost of construction, for one thing, and a shortage of skilled labor has dogged builders for years.

These problems aren’t going to go away overnight. Lumber prices have fallen 42% from a record high in early May, for example, but they are still much higher than they were one year ago.

Read: U.S. consumer prices soar again and push CPI inflation rate to 13-year high

Also: Inflation is surging. How high will it go? Check out MarketWatch’s new tracker.

As a result, home buyers are encountering higher prices and a limited selection, especially given a similar shortage of existing homes for sale.

 “These higher costs have moved some new homes beyond the budget of prospective buyers, which has slowed the strong pace of home building,” said NAHB Chairman Chuck Fowke.

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