A contractor works in the basement of a home under construction in the Toll Brothers Regency in the Palisades community of Charlotte, North Carolina.

Luke Sharrett | Bloomberg | Getty Images

Buyer demand for newly built homes continues to rise, and this keeps builders’ confidence high even as material prices rise.

According to the latest National Association of Home Builders / Wells Fargo Housing Market Index (HMI) released on Wednesday, the sentiment of builders rose 1 point to 84 points in February. Anything over 50 is considered a positive mood. The index was 74 in February 2020.

“Lumber prices have risen steadily this year, hitting a record high in mid-February. This has increased the cost of a new home by thousands of dollars and has led some home builders to abruptly halt projects when inventories are at all-time low “said Chuck Fowke, chairman of NAHB, a home builder from Tampa, Florida. “Builders are still very focused on regulatory and other policy issues that could mark households looking for new homes in a tight market this year.”

While prices are a problem in both the new and existing home markets, buyer demand does not seem to be lessening. Of the three components of the index, current sales conditions stayed steady at 90, and potential buyer traffic rose 4 points to 72. However, sales expectations over the next six months fell 3 points to 80.

“Demand conditions remain solid due to demographics, low mortgage rates and the shift of suburbs to lower cost markets. However, we expect housing growth rates to cool somewhat in 2021 due to cost factors, supply chain problems and regulatory risks . ” said the chief economist of the NAHB, Robert Dietz. “Some construction companies are busy and may not be able to expand production because of this headwind.”

On a moving three-month average, the mood of the builders in the northeast rose regionally by 2 points to 78 and fell in the Midwest by 1 point to 81. In the south it fell by 2 points to 84 and in the west by 2 points to 93.