While housing starts and building permits continue to trend higher, builder confidence, which often dovetails nicely with housing construction figures, has dipped over the last few months.
So what gives?
According to the National Association of Home Builders (NAHB), which, in conjunction with Wells Fargo, publishes the builder confidence index, waning confidence is not necessarily due to diminishing demand for new homes.
NAHB economist David Crowe said: "In addition to tight credit and below-price appraisals, home building is beginning to suffer growth pains as the infrastructure that supports it tries to re-establish itself." In other words, the downsizing that took place during the recession and the economic flat line that followed dramatically diminished those industries that builders rely on to support them.
One of those industries suffering "growth pains" is the wood products industry. As a result, there are certain instances where builders are not receiving their deliveries on time. However, rising demand and a cautious reaction on the part of producers to increase production creates the scenario builders and their representatives dislike even more than tardy shipments — high lumber and panel prices.
Another issue apparently lowering builders' confidence is the draining of the skilled labor pool. The housing downturn sent framers, roofers and sheetrockers looking for other forms of work. In order to coax them back, builders sometimes now must pay higher wages, adding to their costs.
Other concerns among builders include a lack of developed lots to build upon and credit availability.
All these difficulties and roadblocks apparently slowing home production would lead one to conclude that demand for new homes is likely outpacing the number of new homes under construction. One thing learned when the housing bubble burst is that builders have a propensity to overbuild. Perhaps a slow, steady period of recuperation is best for the economy, one that keeps home building in check and lets homeowners continue to recoup some equity.
This article was provided by Crow's Market and Price Service/RISI. For a free trial of this service, visit RISI.com/crowsfree.
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