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Home builders have grown more optimistic regarding the housing market after initially souring on the industry’s outlook as the coronavirus pandemic began.
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The numbers: The number of COVID-19 cases may still be rising significantly across many parts of the country, but home-builders’ outlook on the housing market continues to improve.
The National Association of Home Builders’ monthly confidence index rose 14 points to a reading of 72 in July, the trade group said Thursday.
“Builders are seeing strong traffic and lots of interest in new construction as existing home inventory remains lean,” NAHB Chairman Chuck Fowke, a custom home builder from Tampa, Fla, said in the report. “Moreover, builders in the Northeast and the Midwest are benefiting from demand that was sidelined during lockdowns in the spring.
Index readings above 50 are a sign of improving confidence, and a figure below that threshold would represent a declining outlook. In April, the index had fallen to its lowest level since June 2012. April was also the first time since 2014 that the index has dropped below 50, and the index stayed below that threshold in May.
What happened: Expectations of current single-family home sales jumped 16 points to 79. Builders’ views on the traffic of prospective buyers moved 15 points higher to a reading of 58.
Expectations of home sales in the next six months improved by a smaller amount, rising only seven points to a reading of 75.
On a regional basis, builders experienced the biggest boost in optimism in the Northeast, where the index rose 22 points to 70. The Midwest followed with an 18-point increase to an index of 68. Builders in the South and West saw smaller increases in confidence, but maintained a positive view of the housing market.
The big picture: The continued rebound in housing is benefitting home builders — and experts say the rebound is more than just a reflection of pent-up demand.
“New home demand is improving in lower density markets, including small metro areas, rural markets and large metro exurbs, as people seek out larger homes and anticipate more flexibility for telework in the years ahead,” Robert Dietz, chief economist at the National Association of Home Builders, said in the report. “Flight to the suburbs is real.”
To be sure, the slow-down in real-estate activity prompted by the coronavirus pandemic is giving the home construction industry a boost. But other recently-released data shows that the conditions for the industry have improved overall.
A monthly survey of small- and mid-sized home builders from BTIG found that 60% of builder reported year-over-year increases in sales in June, versus 47% in May. And nearly two-thirds of builder reported better quality of buyer traffic.
Additionally, the BTIG survey found that a growing share of builders are increasing their prices and are not relying on incentives to attract home buyers.
But costs remain something of a concern for home builders. In particular, the cost of the lumber has skyrocketed in recent months due to the uptick in demand and a reduction in supply caused by the pandemic. Not only that, but many builders are seeing rising costs of land, and labor expenses remain a concern.
What they’re saying: “The index is a better guide to the rate of change of housing-market activity than the level; new home sales at the start of this year were running at less than 60% of their 2005 peak, but the NAHB index was higher because growth was faster,” Ian Shepherdson, chief economist at Pantheon Macroeconomics, wrote in a research note.
