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News June 22, 2021

Homebuilder sentiment falls to 10-month low in June

Builder sentiment dropped two points to 81 in June amid materials shortages and high prices, according to cnbc.com. It reached a record high of 90 in November 2020.

Any reading above 50 indicates a positive market; the National Association of Home Builders/Wells Fargo Housing Market Index had fallen to 30 in April 2020.

Of the homebuilder index’s three components, current sales conditions fell two points to 86; sales expectations in the next six months fell two points to 79; and buyer traffic declined two points to 71.

“Higher costs and declining availability for softwood lumber and other building materials pushed down builder sentiment in June,” said NAHB Chairman Chuck Fowke, a homebuilder from Tampa, Fla. “These higher costs have moved some new homes beyond the budget of prospective buyers, which has slowed the strong pace of homebuilding.”

Although lumber prices are falling from their recent peak, they still are higher than average, and costs for other building products also are higher. Additionally, deliveries still are delayed because of pandemic-related lingering supply-chain issues. The higher costs are being passed on to buyers and causing appraisal issues for smaller builders.

“You need an appraisal to get the bank loan, but the appraisal for the eventual home sale price comes in lower than your costs because appraisals have tended to lag where market prices (and construction costs are),” said Robert Dietz, chief economist for NAHB. “The low appraisal means you either need more equity or you cannot proceed with the loan.”

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