Record Traffic Spurs Home Builder Index to New High

It’s been quite a year for the National Association of Home Builders/Wells Fargo Housing Market Index. In April, amid the worst of the coronavirus pandemic, the Index plunged 30 points to its lowest level since 2012. Yesterday—just four months later—the Index reached its highest point in its 35-year history.

NAHB said builder confidence in the market for newly built single-family homes increased by six points in August to 78. The HMI now stands at its highest reading in the 35-year history of the series, matching the record set in December 1998.

All HMI indices posted gains in August. The HMI index gauging current sales conditions rose six points to 84; the component measuring sales expectations in the next six months increased three points to 78; and the measure charting traffic of prospective buyers posted an eight-point gain to reach its highest level ever at 65.

Looking at regional three-month moving averages, the Northeast jumped 20 points to 65, the Midwest increased 13 points to 63, the South rose 12 points to 71 and the West increased 15 points to 78.

“Housing has clearly been a bright spot during the pandemic and the sharp rebound in builder confidence over the summer has led NAHB to upgrade its forecast for single-family starts, which are now projected to show only a slight decline for 2020,” said NAHB Chief Economist Robert Dietz. “Single-family construction is benefiting from low interest rates and a noticeable suburban shift in housing demand to suburbs, exurbs and rural markets as renters and buyers seek out more affordable, lower-density markets.”

NAHB Chairman Chuck Fowke, however, noted while demand for new single-family homes continues to be strong, the V-shaped recovery for housing has produced a “staggering increase” for lumber prices, which have more than doubled since mid-April. “Such cost increases could dampen momentum in the housing market this fall, despite historically low interest rates,” he said.

Last week, the Mortgage Bankers Association released its July Builder Applications Survey, reporting mortgage applications for new home purchases increased by 39 percent from a year ago and by 1 percent from June.

MBA estimated new single-family home sales at a seasonally adjusted annual rate of 890,000 units in July, based on data from the BAS, an increase of 15 percent from the June pace of 774,000 units. On an unadjusted basis, MBA estimated 72,000 new home sales in July 2020, an increase of 1.4 percent from 71,000 new home sales in June. 

“New home sales activity continued to rebound in July after a pandemic-induced low point in April,” said Joel Kan, MBA Associate Vice President of Economic and Industry Forecasting. “Typically, new home purchases peak in April and then decline through the remainder of the year. With the disruption this spring, seasonal patterns are not holding, and hence the seasonal adjustment is likely overstating the increase for this month.”

While the strong July numbers signal still-strong demand for housing, Kan said MBA remains concerned about supply. “Housing starts have not kept up with demand and this could hold back the pace of sales in the coming months,” he said.

A further gauge of housing industry performance comes out this morning, when HUD and the Census Bureau release the monthly New Residential Construction report for July, including housing starts, permits and completions. MBA Chief Economist Mike Fratantoni will provide analysis in Wednesday’s MBA NewsLink.