Buyer Demand Shores Up Builder Confidence

After dropping from record high levels by a total of 7
points over the last two months, the index that measures home builder
confidence has stabilized.
The Housing Market Index (HMI), produced by the
National Association of Home Builders (NAHB) and Wells Fargo, rose 1 point in
February to 84.

“Demand conditions remain solid due to demographics, low mortgage rates and
the suburban shift to lower cost markets, but we expect to see some cooling in
growth rates for residential construction in 2021 due to cost factors, supply
chain issues and regulatory risks,” said NAHB Chief Economist Robert Dietz. “Some builders are at capacity and may not be able to expand production due to
these headwinds
.”

“Lumber prices have been steadily rising this year and hit a record high in
mid-February, adding thousands of dollars to the cost of a new home and causing
some builders to abruptly halt projects at a time when inventories are already
at all-time lows,” said NAHB Chairman Chuck Fowke. “Builders remain very
focused on regulatory and other policy issues that could price out households
seeking new homes in a tight market this year.”

NAHB surveys its new home builder members each month, asking for their 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.

The component measuring current sales conditions was unchanged from January
at 90, while the component measuring sales expectations in the next six months
fell 3 points to 80.
The index charting traffic of prospective buyers rose 4
points to 72.

Regional scores are given as three-month moving averages. The score in the Northeast
rose 2 points to 78 and the Midwest declined 1 point to 81. Both the South and
the West lost 2 points to 84 and 93, respectively.

Source: mortgagenewsdaily.com

Home Builder Confidence Improves, but High Construction Costs Remain a Concern

The numbers: The construction industry’s outlook improved in February amid better foot traffic from home buyers, even as the cost of building homes increased.

The National Association of Home Builders’ monthly confidence index rose one point to a reading of 84 in February, the trade group said this week. The modest increase comes after two consecutive months where the index has dropped.

Index readings over 50 are a sign of improving confidence. Last spring, the index dropped below 50 as concerns regarding the coronavirus pandemic grew, but the index rebounded and later hit a series of record highs in the fall.

What happened: The index that measures sentiment traffic of prospective buyers increased four points to 72. Comparatively, the outlook regarding current sales activity held steady between January and February, while the index of expectations for future sales over the next six months declined by three points to 80.

On a regional basis, builders’ confidence regarding the housing market in the Northeast improved dramatically, rising from 68 in January to 89 in February. Builders also grew more confident about the state of the market in the Midwest and maintained their positive outlook on the South. Confidence worsened slightly in the West, however.

The big picture: Demand for new homes remains extremely high. The lack of existing homes for sale, plus renewed interest in suburban living amid the pandemic, is pushing buyers further out from major cities and toward newly-constructed developments. But price pressures could begin to affect builders and buyers alike in the coming months.

“Lumber prices have been steadily rising this year and hit a record high in mid-February, adding thousands of dollars to the cost of a new home and causing some builders to abruptly halt projects at a time when inventories are already at all-time lows,” Chuck Fowke, who is the current chairman of the National Association of Home Builders and a custom home builder from Tampa, Fla., said in the report.

“Builders remain very focused on regulatory and other policy issues that could price out households seeking new homes in a tight market this year,” Fowke added.

What they’re saying: “Housing starts and permits should moderate, but from the highest levels since 2006, as building activity continues to be supported by strong demand for homes — especially single-family construction — and low inventories,” Rubeela Farooqi, chief U.S. economist at High Frequency Economics, wrote in a research note.

Market reaction: The Dow Jones Industrial Average and the S&P 500 index were both down slightly Wednesday morning.

Source: realtor.com

Home-Builder Confidence Slips From Record High in December, as Buyers Get Cold Feet

The numbers: The construction industry’s outlook worsened slightly in December, according to research from a trade group released Wednesday.

The National Association of Home Builders’ monthly confidence index dropped four points to a reading of 86 in December, the trade group said. This was the first time that the index had dropped after three consecutive months of record highs. Even with December’s decline, the figure represents the second-highest reading in the index’s history.

Index readings over 50 are a sign of improving confidence. The index had fallen below 50 in April and May in the immediate wake of the pandemic.

What happened: The three main indicators that guide the overall index all decreased by four points from November’s reading.

The index that measures sentiment regarding prospective buyer traffic came in at 73. The index of expectations for future sales over the next six months dropped to 85, and the gauge of current single-family home sales slipped to 92.

Sentiment also declined across all parts of the country. The index fell by three points in Northeast, Midwest and South, and by two points in the West.

The big picture: The housing market has remained a bright spot in the economy throughout the pandemic, and despite the monthly decline in December the home-building industry remains on strong footing. That said, builders are responding to buyers who appear to be cooling on the market.

To some extent, this could be a reflection of buyers growing accustomed to low mortgage rates, meaning that cheap financing is no longer providing the same boost to the market. At the same time, rising home prices across the country could be negating some of the benefit of lower interest rates.

While the rollout of vaccines to combat the coronavirus is good news for the economy, it could end up causing a slowdown in the housing market. “As the economy improves with the deployment of a COVID-19 vaccine, interest rates will increase in 2021, further challenging housing affordability in the face of strong demand for single-family homes,” Robert Dietz, chief economist at the National Association of Home Builders, said in the report.

Dietz also noted that issues such as the availability of land and skilled labor “will continue to place upward pressure on construction costs,” which could price even more buyers out of the market.

What they’re saying: “There is still an immense undersupply of all types of housing, particularly affordable rental housing which may keep multifamily construction from slowing too much,” Sam Bullard, managing director and senior economist at Wells Fargo Corporate and Investment Banking, wrote in a research note earlier this week.

“Fewer builders are reporting improved [year-over-year] traffic quality than earlier in 2020, which may be a sign of decreased customer urgency, or builders may have worked through a significant number of highly-qualified customers already,” home-building analysts at BTIG wrote in their monthly home builder survey report.

Source: realtor.com

Home Builder Confidence Surges to New Record High as Sales Volume Grows

The numbers: The construction industry’s outlook improved again in November, according to research from a trade group released Monday.

The National Association of Home Builders’ monthly confidence index rose five points to a reading of 90 in November, a record high, the trade group said Tuesday. It is the fourth consecutive month that the index has hit a new record high.

Index readings over 50 are a sign of improving confidence. Back in April and May, the index dropped below 50 as pandemic concerns mounted.

What happened: The index that measures sentiment regarding current sales conditions increased six points to 96, while the index of expectations for future sales over the next six months rose one point to 89. The gauge regarding prospective buyers increased three points to 77.

At a regional level, though, confidence varied. The indexes for the Midwest, South and West all increased, led by a nine-point gain in the Midwest. But in the Northeast the index dropped fives point to 82.

“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,” Robert Dietz, chief economist at the National Association of Home Builders, said in the report.

The report was based on survey responses, most of which were collected before the presidential election was called for former Vice President Joe Biden on Nov. 7. December’s report will more fully capture the reactions of the home-building sector to the election.

The big picture: Builders’ optimism is an indication of the continued strength of the housing sector. While recent data, including mortgage application figures from the Mortgage Bankers Association, suggest that buyers are pumping the brakes on making deals, that’s not a cause for concern for builders. Rather, it’s a sign that seasonality is kicking in after a delayed spring and summer home-buying season continued into the early fall.

The conditions that make buying a newly-built home right now appealing are still present — and should be for some time. Even if mortgage rates increase because of a coronavirus vaccine, economists expect them to remain low by historical standards. And while Americans’ interest in the suburbs has grown, the supply of existing homes for sale has not. That leaves an opening for home builders.

“The strength in the housing market likely has legs, as it will take quarters and likely years for builders to catch up with the one-time spike in demand for single-family homes,” Stephen Stanley, chief economist at Amherst Pierpont, said in a research note last week after D.R. Horton released its quarterly earnings.

What they’re saying: “The October retail sales and industrial production reports, together with the November homebuilder survey, capture activity in the three strongest parts of the economy. But they have nothing to say about the deteriorating picture in the discretionary services sector, which is being hammered by the third COVID wave,” Ian Shepherdson, chief economist at Pantheon Macroeconomics, wrote in a research note.

“The signal from the weekly mortgage purchase applications index is also one of some slowing in momentum,” Rubeela Farooqi, chief U.S. economist at High Frequency Economics, wrote in a research note.

Market reaction: The Dow Jones Industrial Average and the S&P 500 index were down Tuesday morning following the disappointing retail sales report.

Source: realtor.com