Builders expressed renewed confidence in May after a three month drop in the NAHB/Wells Fargo Housing Market Index. The May index rose three points to 44 from a downwardly revised April level of 41. All three components increased: current sales increased four points to 48, expected sales increased one point to 53, a seven year high, and traffic increased three points to 33. Except for future expectations, the main index and the other two components remain below their peaks in December and January.
Builders report buyers are more aggressive in the market now as house prices continue to rise consistently while interest rates and the inventory of existing homes for sale remain low. In a few markets, builders report healthy competition that has allowed them to raise prices.
Many builders are reporting increased material costs and the producer price indexes for lumber, plywood, gypsum and oriented strand board (OSB) have shown significant increases in the past year. Gypsum is at 94% of its peak during the boom; softwood lumber is at 93% of its cyclic peak and concrete is at 99% of its peak while housing starts are at 46% of their peak.
Builders’ confidence has not returned to the peak in December and January as the headwinds of rising material prices, scarce labor and land and tight credit conditions continue but increased demand has offset some of those hurdles and caused builders to become more optimistic than they were in April. NAHB expects the housing market to continue its current rate of improvement and end the year at just over 1 million starts.