Builder confidence reaches a record in August

Builder sentiment continues to grow as housing and the economy continue to move forward.

The latest National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index (HMI) shows builder confidence in the market for newly-built single-family homes moving ahead six points to 78 in August. 

This is the highest reading in the 35 years of the HMI, matching a record set in December 1998, the NAHB said.

The Monthly New Residential Construction report for July, including the latest housing starts and building permits data, will be released by the Department of Commerce on Aug. 18.

“The demand for new single-family homes continues to be strong, as low interest rates and a focus on the importance of housing has stoked buyer traffic to all-time highs as measured on the HMI,” said NAHB Chairman Chuck Fowke. “However, the V-shaped recovery for housing has produced a staggering increase for lumber prices, which have more than doubled since mid-April. 

According to Fowke, rising cost increases in home building “could dampen momentum in the housing market this fall, despite historically low interest rates.”

All the 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 the three-month moving averages for regional HMI scores, 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.”

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.

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

Last month, the Department of Commerce reported that total housing starts for June 2020 increased 17.3% to a seasonally adjusted annual rate of 1.186 million as single-family starts jumped 17.2% to 831,000 from the revised May rate of 709,000. 

The June report also saw single-family permits climb 11.8% to a rate of 834,000.