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September Belco Bulletin: August Trends and Builder Sentiment

builder sentiment

As we delve into August’s lumber market snapshot, we find a landscape marked by mixed signals. This presents both opportunities and challenges for the industry. Let’s explore the key indicators that shape this dynamic environment and informed builder sentiment.

Strong Starts and Steady Permits

Starts in the lumber market had a robust showing, surging nearly 7% compared to the previous month, and displaying a commendable 9.47% increase compared to the same period last year. On the permit side, the numbers remained relatively flat from the previous month, but they’re up 1.3% from a year ago. This balance between starts and permits sets the stage for a complex market scenario.

Regionally, the South experienced a dip in starts, but permits bounced back, showing a 1.43% increase from the previous month. In the West, starts surged, but permits remained flat for the second consecutive month. This regional disparity suggests that new single-family construction activity is likely to remain relatively steady over the next 60-90 days, with regional variations.

Optimistic Growth Forecasts

The NAHB “Eye on Housing” forecast remains optimistic, with total single-family starts for 2023 projected at 896,000 units, reflecting a 2.44% increase from the previous month’s forecast of 875,000 units. Forecasts for Q3 and Q4 in 2023 have also increased by 3% each, pointing to a robust finish for the year. These forecasts underscore the industry’s potential for growth despite the challenges.

Builder Sentiment: A Shift in Outlook

Builders, however, are displaying a more cautious outlook, with the NAHB Housing Market Index (HMI) dropping by 6 points down to 50. The HMI score of 50 signifies a balance between optimism and uncertainty, and this notably marks the first decrease since December 2022. Regionally, the South dropped another 3 points to 55, while the West experienced a significant 8-point drop to 46.

According to the NAHB, higher mortgage rates are contributing to a decline in buyer traffic. Stabilizing rates is essential to prevent a slowdown in the housing market. Moreover, new home prices continue to rise, remaining flat compared to a year ago but surging by 18% compared to two years ago. This, coupled with rising mortgage rates, strains affordability. It also impacts the decreased scores in all three areas that comprise the HMI: Present SF Sales, SF Sales over the next 6 months, and Traffic of Prospective Buyers.

Despite this, there’s a silver lining in the form of thriving new home construction. A notable trend in new home construction is the increasing share of FHA-insured loans in new home purchase applications. The share of new home sales backed by FHA loans rose from 12.1% to 14% in the second quarter of this year, according to National Association of Homebuilders (NAHB) analysis. FHA loans are favored by low- to moderate-income borrowers and first-time home buyers due to their lower credit score and down payment requirements.

As the housing market continues to evolve, new homes are becoming increasingly competitive, both in terms of inventory and price. The median sales price gap between new homes and existing homes has significantly narrowed. This thriving new home construction sector, despite some cautious builder sentiment, remains a bright spot in the industry’s landscape.

Cautiously Optimistic Approach

With the news and data sending mixed messages, it’s prudent to maintain a cautiously optimistic approach. Existing customers are expected to remain steady, while new business opportunities might contribute to increased activity for industry players like Belco. Navigating this complex landscape will require a keen understanding of market dynamics and a proactive response to changing conditions.

In conclusion, Belco’s lumber market snapshot reveals a nuanced environment, where growth potential coexists with challenges. Balancing optimism with caution will be key to successfully navigating the evolving market dynamics in the coming months.

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