The U.S. housing market's storyline for the last several yearshas been one of steady demand and limited supply, pushing pricesever higher. Now, a new chapter has opened up for the industry andits customers: soaring costs for building materials.

|

Reports on Tuesday underscored both resilient purchase activityand accelerating home prices. The S&P CoreLogic Case-Shillerindex showed property values in 20 major U.S. cities climbed 6.8%in February, the biggest year-over-year gain since June 2014.Government data revealed a faster-than-projected rate of new-homesales in March and huge upward revisions to the prior twomonths.

|

Inventories of previously owned homes are plumbing the lowestlevels in at least 19 years, a key reason why resilient demand byitself has fueled price appreciation that's extending to thenew-homes market. Now, with the costs of lumber and other buildingmaterials soaring together, buyers are unlikely to see any relieffor some time.

|

In fact, builders such as PulteGroup Inc., Lennar Corp. and KBHome have indicated they are having success passing alongconstruction costs and signaled margins will remain in good shapegoing forward.

|

“There is pressure on a few of the commodities and we are alldealing with some of the labor pressures that have been in thenews. So we expect that you'll continue to see some pressure. Andin the first quarter, we were able to outpace the cost pressurewith price.”– Jeffrey Mezger, CEO at KB Home, on March 22earnings call“There is inflationary pressure oncommodities. The good news is that we've seen a market that'sallowed us to price to cover most of that.”– RobertO'Shaughnessy, CFO at Pulte, on April 24 earnings callThe cost ofmaterials is important because everything from the laying thefoundation to framing to painting represents the largest share of atypical single-family home purchase, according to an annual surveyby the National Association of Home Builders.

|

The framing of homes, or putting up roofs and walls, accountsfor 15% of the cost of construction. A composite measure of thecost of lumber for framing rose 16% from December to March,according to data from Random Lengths, a publisher of informationon wood products.

|

And it's not just lumber. A Labor Department gauge of pricespaid at the producer level for construction inputs — everythingfrom particleboard and plumbing to concrete and insulation — was up5.1% in March from a year earlier, the biggest annual advance innearly eight years.

|

So far, neither higher home prices or a four-year high inmortgage costs have been enough to dissuade buyers. Results of theConference Board's consumer confidence index on Tuesday showed 1.7%of the group's respondents in April planned to purchase a new homein the next six months, matching the highest share in thisexpansion.

|

Helping shape that pickup is a larger share of Americans who saythat now is a good time to buy because prices aren't going to fallany time soon. Sixteen percent of consumers surveyed by theUniversity of Michigan in March said that homebuying conditionswere “good” considering asking prices won't get any better.

|

At some point, affordability will become a bigger issue forthose wanting to own a home. So far though, consumers are takinghigher home prices in stride and builders remain relatively upbeatabout the market's prospects.

|

Copyright 2018 Bloomberg. All rightsreserved. This material may not be published, broadcast, rewritten,or redistributed.

Complete your profile to continue reading and get FREE access to CUTimes.com, part of your ALM digital membership.

  • Critical CUTimes.com information including comprehensive product and service provider listings via the Marketplace Directory, CU Careers, resources from industry leaders, webcasts, and breaking news, analysis and more with our informative Newsletters.
  • Exclusive discounts on ALM and CU Times events.
  • Access to other award-winning ALM websites including Law.com and GlobeSt.com.
NOT FOR REPRINT

© 2024 ALM Global, LLC, All Rights Reserved. Request academic re-use from www.copyright.com. All other uses, submit a request to [email protected]. For more information visit Asset & Logo Licensing.