Builder Confidence Reaches 8-Month High in November

home buildersHome builders are feeling a lot better about where the new housing market is headed, thanks to a consistent increase in demand and a continuing struggle with real estate inventory.

According to the latest information from the National Association of Home Builders (NAHB), builder confidence in the market for newly-built, single-family homes rose 2 points to a level of 70 in November, marking the highest reported confidence level since March and the second highest on record since July 2005.

“November’s builder confidence reading is close to a post-recession high–a strong indicator that the housing market continues to grow steadily,” said NAHB Chairman Granger MacDonald, a home builder and developer from Kerrville, Texas. “However, our members still face supply-side constraints, such as lot and labor shortages and ongoing builder material price increases.”

Despite these hurdles, home builders have an overall positive outlook. Much of this is likely due to steady gains in demand for new housing.

“Demand for housing is increasing at a consistent pace, driven by job and economic growth, rising homeownership rates and limited housing inventory,” said NAHB Chief Economist Robert Dietz. “With these economic fundamentals in place, we should see continued upward movement of the single-family housing market as we close out 2017.”

The perceptions of home builders throughout the United States is monitored closely by the housing industry through the NAHB’s monthly survey of home builder confidence. The NAHB/Wells Fargo Housing Market Index (HMI) gauges builder perceptions of current single-family home sales and sales expectations for the next six months as “good,” “fair” or “poor.” Survey respondents are also asked to rate traffic of prospective buyers as “high to very high,” “average” or “low to very low.” The scores from each component are used to calculate a seasonally-adjusted index where any number over 50 indicates that more builders see conditions as good than poor.

November’s HMI revealed the following:

  • The component gauging current sales conditions rose 2 points to 77.
  • The index measuring buyer traffic rose 2 points to 50.
  • The index measuring sales expectations for the next six months fell one point to 77.

Using a three-month moving average, the regional scores were as follows:

  • The Northeast jumped 5 points to a score of 54.
  • The South gained 1 point to 69.
  • The West and the Midwest remained unchanged, with scores of 77 and 63, respectively.

What does this information tell us?

We can presume that with builder confidence continuing to grow, and even reaching a significant high, more newly-constructed single-family homes are likely to appear in growing markets. Markets with less available land may see new housing communities appear in higher price ranges–that’s nothing new–but now could be the time we finally see more lower-priced housing being built to help satisfy demand. After all, millennials (who comprise the bulk of young adults in typical home-buying age) are seeking moderately priced homes or homes in the lower price points — and those just happen to be the homes that are noticeably absent in today’s market.

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