Builder Confidence Reaches 5-Year High in June; Framing Lumber Prices Are Back to 2006 Levels

From the National Association of Home Builders today:

"Builder confidence in the market for newly built, single-family homes gained one point in June from a slightly revised level in the previous month to rest at 29 on the National Association of Home Builders/Wells Fargo Housing Market Index (HMI). This is the highest level the index has attained since May of 2007 (see top chart above). 

“This month’s modest uptick in builder confidence comes on the heels of a four-point gain in May and is reflective of the continued, gradual improvement we are seeing in many individual housing markets as more buyers decide to take advantage of today’s low prices and interest rates,” said Barry Rutenberg, chairman of the National Association of Home Builders (NAHB) and a home builder from Gainesville, Fla."

MP: The top chart above shows the historical relationship between the NAHB/Wells Fargo HMI (blue line, through June) and the number of new, single-family housing starts (red line, through April) back to 1985. Although builder confidence is still far below pre-recession levels, it has been on a definite upward trend since the index dropped to an all-time historical low of 8 in January 2009, and has now rebounded this month to a five-year high. However, the HMI has to rise above 50 before more home builders view conditions as good than poor, so the market for new homes obviously still has a long way to go. 

In another sign that home building is recovering, even if it's at a slow pace, the prices for framing lumber - the wood used for new home construction - have been rising (see bottom chart above, data here).  Weekly lumber prices have increased by about $100 per 1,000 board feet since last winter, rising from $252 in early November to above $340 in each of the last four weeks. Except for an artificial run-up in lumber prices in April 2010 that was related to the home-buyer tax credit that expired in May 2010, lumber prices in recent weeks have returned to the highest levels since the spring of 2006.  The rising lumber prices to six-year highs is possibly reflecting increased demand in recent months for new home-building and other construction projects. 

Anecdotally, I just heard about a cabin owner in northern Minnesota whose property is located 100 miles from the North Dakota border, and the person is getting bids for a new garage.  The local builders said that lumber is hard to get, and also very expensive, partly because of the building boom going on in North Dakota.  So there are some hopeful signs of a real estate recovery, and we'll find out more on Thursday when the National Association of Realtors reports on existing-home sales for May.  

Update: A few related comments about today's NAHB report, from the WSJ:

Joshua Shapiro, economist, MFR Inc.: “The cumulative 15-point gain reported in the nine months to May had lifted this index to its best level since May 2007. These recent results would seem, therefore, to point to significant gains in single-family housing starts, something that so far has not occurred even with record warmth this past winter. The next few months will be critical in determining to what degree homebuilders follow their more optimistic talk with action.”

Cooper Howes, economist, Barclays Capital: “This report is in line with our view of a continued housing recovery in 2012, and we expect this year to be the first since 2005 in which residential investment will provide a positive contribution to real GDP growth.”