In a recent NAHB survey, over 40 percent of builders said construction costs in general are causing home buyers to hold back from purchasing a new home, and over 90 percent said that lumber prices specifically are hurting affordability. The results are consistent with yesterday’s post, which described a surge in the number of builders reporting a shortage of framing lumber.
The new results reported in this post come from special questions on the April 2018 survey for the NAHB/Wells Fargo Housing Market Index (HMI). One of these questions asked single-family builders in the HMI panel why their prospective customers are holding back from buying a new home—if, in fact, that is what they are doing. A substantial share (21 percent) said that the question didn’t apply, because their buyers are not holding back at the moment. But the top answer, checked by 43 percent of the builders, was that buyers are holding back right now because they are unwilling to cover current construction costs. The second most common reason for holding back (checked by 32 percent of the builders) was that existing home prices are more competitive. At the other end of the spectrum, only 7 percent of builders cited student debt as a reason for buyers holding back, despite the attention the topic has received recently (for example, in a 2017 report issued by American Student Assistance® and the National Association of REALTORS®).
The top two reasons for buyers holding back as of April 2018 are related, of course, as rising construction costs are a key reason existing home prices are currently more competitive.
A key reason for rising construction costs, in turn, is the increase in lumber prices the home building industry has witnessed over the past year and a half (along with the ongoing shortage of labor in vital construction trades, and the effect of government regulation in the price of a new home). Another question on NAHB’s April HMI survey asked single-family builders if this increase was having an adverse impact on the affordability of the homes they build. In response, 95 percent of the builders said “yes,” the recent increase in lumber prices was hurting the affordability of their new homes. The 95 percent were evenly split on whether the adverse impact on affordability was significant, or only minor.