Builder Confidence Starts Year Strong

Builder confidence in the market for newly built single-family homes remains healthy, the National Association of Home Builders/Wells Fargo Housing Market Index reported.

The index slipped one point to 75 in January but remains just shy of the last two monthly readings, which showed the highest sentiment levels since July 1999.

NAHB and Wells Fargo credited low interest rates and a healthy labor market combined with a need for additional inventory for setting the stage for further home building gains in 2020.

“With the Federal Reserve on pause and attractive mortgage rates, the steady rise in single-family construction that began last spring will continue into 2020,” said NAHB Chief Economist Robert Dietz. But he noted builders continue to grapple with a shortage of lots and labor while buyers are frustrated by a lack of inventory, particularly among starter homes.

Yesterday the Mortgage Bankers Association’s Builder Application Survey reported December mortgage applications for new home purchases dipped 5 percent compared to November but finished the year strong.

MBA Associate Vice President of Economic and Industry Forecasting Joel Kan said the “sizeable” year-over-year increase in new home purchase activity in December capped off a strong 2019. He called a recovery in new residential construction a promising sign for prospective homebuyers. “Even though supply continues to lag, we expect to see another year of gradual growth in new home sales, supported by rising household formation and the healthy job market,” he said.

The NAHB/Wells Fargo Housing Market Index 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 their prospective buyer traffic as “high to very high,” “average” or “low to very low.” These scores yield a seasonally adjusted index where any number over 50 indicates that more builders view conditions as good than poor.

The Housing Market Index charting prospective buyer traffic increased one point to 58, the highest level since December 2017. The gauge measuring current sales conditions fell three points to 81 and the component measuring sales expectations in the next six months held steady at 79, NAHB and Wells Fargo said.

Looking at three-month moving averages for regional Housing Market Index scores, the Northeast rose one point to 62, the Midwest increased three points to 66 and the West moved one point higher to 84, NAHB and Wells Fargo said. The South remained unchanged at 76.