Buyers are increasingly turning to newly constructed homes for more options. Sales of new single-family homes surged 20.7% month over month in March to a 1.02 million seasonally adjusted annual rate, according to new data from the Department of Housing and Urban Development and the Census Bureau. New-home sales are at the highest annual pace since September 2006.

“Our members are seeing strong buyer traffic as continued low mortgage rates are helping fuel sales,” says Chuck Fowke, chairman of the National Association of Home Builders. “However, builders are still grappling with major supply chain issues and soaring materials costs, which are causing construction delays and preventing them from adding to the already very low inventory.”

Builders are facing particular challenges because of rapidly rising lumber prices, which nearly doubled over a four-month period in 2020 and have continued to reach new highs. To help offset increasingly expensive prices, more builders are adding escalation clauses to their sales contracts.

Many builders are increasing their home prices due to the rising costs of materials. As such, “housing affordability remains a major concern,” says Danushka Nanayakkara-Skillington, the NAHB’s assistant vice president of forecasting. “With building material pricing, the challenge for builders in 2021 will be to deal with higher input costs while making sure home prices remain within reach for American home buyers.”

The median new-home sales price was $330,800 in March. Inventories dropped to a 3.6-month supply last month, and sales contracts for homes that haven’t been built yet surged 150% year over year—an indicator of housing delays and higher construction costs, the NAHB notes. On a regional basis, new-home sales saw the biggest upticks last month in the Midwest, up 53.9% annually, followed by a 50.5% increase in the South and a 36.6% increase in the Northeast. Meanwhile, new-home sales declined 3.3% in the West.