Builder Confidence shatters previous high

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Builder Confidence shatters previous high

By HBSDealer Staff - 11/17/2020

Home builder sentiment reached new heights in November, the National Association of Home Builders (NAHB) reported.

Builder confidence in the market for newly-built single-family homes increased five points to 90 in November, blowing well past the previous all-time high of 85 recorded in October, according to the latest NAHB/Wells Fargo Housing Market Index (HMI) released today. 

This marks three consecutive months of builder confidence levels hitting all-time highs.

Historically low mortgage rates, favorable demographics, and an ongoing suburban shift for home buyer preferences have spurred demand and increased new home sales by nearly 17% in 2020 on a year-to-date basis. 

But sales could be even better and are being held back by market constraints. 

“Though builders continue to sign sales contracts at a solid pace, lot and material availability are holding back some building activity,” said NAHB Chairman Chuck Fowke. “Looking ahead to next year, regulatory policy risk will be a key concern given these supply-side constraints.”

Housing affordability is another ongoing concern, as construction costs continue to rise and interest rates are expected to move higher as more positive news emerges on the coronavirus vaccine front, the NAHB said. 

“Another record high for the HMI reflects that housing is a bright spot for the economy,” said NAHB Chief Economist Robert Dietz. “In the short run, the shift of housing demand to lower density markets such as suburbs and exurbs with ongoing low resale inventory levels is supporting demand for home building.”

The HMI gauges builder perceptions of current single-family home sales and sales expectations for the next six months as “good,” “fair” or “poor.” The survey also asks builders to rate traffic of prospective buyers as “high to very high,” “average” or “low to very low.” 

Scores for each component are then used to calculate a seasonally adjusted index where any number over 50 indicates that more builders view conditions as good than poor.

Survey responses for this survey were received before the election for president was called by the media on Nov. 7. The election results, and their future impacts on housing market conditions, will be more fully reflected in December’s HMI report.

All the HMI indices posted their highest readings ever in November. The HMI index gauging current sales conditions rose six points to 96, the component measuring sales expectations in the next six months increased one point to 89, and the measure charting traffic of prospective buyers rose three points to 77.

Looking at the three-month moving averages for regional HMI scores, the Northeast increased two points to 83, the Midwest jumped six points to 80, the South rose four points to 86 and the West increased four points to 94.

More information about builder confidence along with HMI tables can be found at nahb.org/hmi.