Eye on the Economy
Building Shifts to Suburbs as Lumber Price Gains Continue
Lumber prices continue to climb as demand for new construction and remodeling remains solid. Since mid-April, the composite price of lumber, per Random Lengths, has increased by more than 150%. According to the most recent NAHB analysis, this is adding approximately $16,000 to the price of a typical, new single-family home and more than $6,000 to the average new apartment. Beyond lumber, prices of several other building inputs continue to rise and average delivery times for many are growing. Such constraints in the supply chain will slow the growth rate for single-family construction and remodeling in the coming months. The residential construction market needs additional domestic lumber production and tariff relief for Canadian imports.
Of course, the reason for these supply shortfalls is that housing remains in high demand. New home sales surged in July, increasing 14% and reaching a post-Great Recession high of 901,000 at a seasonally adjusted annual rate. Inventory fell to a lean four-month supply. New home prices are expected to rise due to increases in home size and building material costs. Similar trends were witnessed for the resale market, where the National Association of Realtors’ pending home sales index increased almost 6% in July and was estimated to be more than 15% higher than a year ago. Home price growth has been strong, with the Case-Shiller Index up 5.5% year-over-year in July.
Changing consumer preferences and a pivot away from high-density markets has led to relatively more growth in suburban markets. According to the second quarter NAHB Home Building Geography Index (HBGI), of the seven tracked regional geographies, only small metro area suburbs posted a year-over-year gain in this quarter, while the others registered declines, the biggest of which occurred in large metro core areas. The market share for single-family construction in low-density areas (small metro core and suburbs, small towns and rural markets) increased from 47.5% a year ago to 48.4%.
Moreover, these trends are not just present in single-family construction. The fastest growing geographies for apartment construction in the second quarter were found in the exurbs, small metro suburbs and rural areas. The market share for multifamily construction in low-density areas increased from 32.9% a year ago to 34%.
Macroeconomic risks remain for the housing market. Weekly jobless claims continue to exceed one million and the unemployment rate is still above 10%. This labor market weakness in turn is feeding concerns about the ability of households to make rent payments in the fall, although thus far, the data have come in better than expected. But for the home building industry, the rising cost of materials will hinder the rate of improvement witnessed during an otherwise solid summer.
–NAHB Chief Economist Robert Dietz