The housing market is still red hot despite lumber shortage

Americans keep putting money into their homes. And that’s great news for Home Depot.

The retail giant reported sales and earnings for the first quarter Tuesday morning that topped forecasts. The rising price of lumber and other inflation pressures have helped Home Depot, whose stock has surged 20% so far this year.

“We continue to build on the momentum from our strategic investments and effectively manage the unprecedented demand for home improvement projects,” Home Depot chairman and CEO Craig Menear said in a press release.

Rival Lowe’s, which is set to release its latest earnings results Wednesday morning, is also benefiting from this trend. Its shares are up 20% in 2021 as well.

The housing market has remained robust throughout the COVID-19 pandemic. And while lumber shortages could put a temporary dent in new home construction, Home Depot is not worried.

Supply constraints may be temporary blip for housing

“The housing environment continues to remain very strong,” Menear said on a conference call with analysts. “It’s only strengthened, I think, from last year.”

“The current shortage of new housing clearly is helping to drive improvements in the home values, which is a good thing for spending in the home,” he added.

Along those lines, the federal government also reported Tuesday that housing starts in April fell nearly 10% from March — although they’re up sharply from a year ago. Building permits for new homes rose slightly from March, too, and soared more than 60% from April 2020.

“This implies a significant pipeline of future projects which should continue to push starts higher in the months ahead,” Jefferies economists Aneta Markowska and Thomas Simons said in a report Tuesday.

In other words, demand for housing is still strong, particularly as mortgage rates remain historically low thanks to below average long-term Treasury bond yields and the Federal Reserve holding short-term rates near zero.

“Builders are delaying starting new construction because of the marked increase in costs for lumber and other inputs,” said Mike Fratantoni, senior vice president and chief economist with the Mortgage Bankers Association, in a report Tuesday.

He added that supply shortages for appliances are also putting a damper on new home building activity.

“These supply chain constraints are holding back a housing market that should otherwise be picking up speed, given the strong demand for buying fueled by an improving job market and low mortgage rates,” Fratantoni said.

That means home sales could pick up again later in the year once some of these supply chain bottlenecks are ironed out.