The residential housing market, which has boomed for the last year, dropped 10.3% in February, a significant fall. Applications for new homes also fell by 10.8%.
Some blame February’s slowdown on massive weather problems; others wonder if the housing boom has burned out. Oxford Economics cites that a lack of building lots and a dramatic increase in the price of lumber have caused the disruption. Their publication showed that random length lumber prices have tripled since the same time last year.
The National Association for Home Builders said lumber prices alone had added an average of $24,000 to the median individual home's construction cost.
Despite the drop in applications—the first since October—Oxford Economics believes that housing will significantly contribute to the economy in 2021. “We expect the pace of housing starts to moderate in 2021 as homebuilders confront constraints including high lumber prices and shortages of lots and labor. However, we think the February data overstates any actual weakness in the housing market,” Nancy Vanden Houten, lead economist, wrote.
Other economists echoed Houten’s statement, including Rubeela Farooqi of High-Frequency Economics, who said: “Mortgage rates are historically low and combined with record-low inventories are likely to support building activity, especially in the single-family sector.”
The Northwest experienced the worst drop; starts were down 39.5%. The Midwest followed with a 34.9% drop. Meanwhile, the West grew by 17.6%.
February yielded a significant decline across-the-board in the housing market whether it be from increased construction material prices or an ebb in demand.