Builder Confidence Begins Year Strong as Single-Family Growth Continues

Builder confidence in the market for newly-built single-family homes edged one point lower to 75 in January, according to the latest National Association of Home Builders/Wells Fargo Housing Market Index (HMI). The last two monthly readings mark the highest sentiment levels since July of 1999. Low interest rates and a healthy labor market combined with a need for additional inventory is setting the stage for further home building gains in 2020.

Housing Market Index
Housing Market Index

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. However, builders continue to grapple with a shortage of lots and labor while buyers are frustrated by a lack of inventory, particularly among starter homes.

Derived from a monthly survey that NAHB has been conducting for 30 years, 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 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 HMI index charting traffic of prospective buyers 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.

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

The HMI tables can be found at nahb.org/hmi.

Article written by Robert Dietz on January 16, 2020 for NAHB Eye on Housing