This post was originally published on this site
The numbers: Home builders are closing out 2019 more optimistic than they’ve been in decades.
The National Association of Home Builders’ monthly confidence index increased five points to 76 in December from an upwardly-revised 71 the month prior, the trade group said Monday. December’s figure represents the highest index reading since June 1999.
Index readings above 50 are a sign that confidence is improving, while a figure below that threshold would signal that builders have mounting worries.
Read more: The hottest housing markets of 2020 are far from the coasts
What happened: Home builders have grown steadily more confident throughout 2019 — this time a year ago, the confidence index was at 56.
The indicator of expectations for future sales over the next six months increased one point to 79. The gauge of current single-family home sales jumped seven points to 84, while the index that measures sentiment regarding prospective buyer traffic ticked up four points to 58.
Regionally, home-builder sentiment improved on a monthly basis across the South (up one point), Midwest (up five points) and West (up three points), but worsened slightly in the Northeast by two points.
Big picture: The NAHB’s index functions as an indicator of potential future home-building activity. Housing starts data has improved in recent months, and that trend could continue into the new year. Several factors are driving the improvements in confidence. Low mortgage rates should continue to stimulate appetite among home buyers, which should help keep sales volume positive in 2020. Meanwhile, the low supply of existing homes for sale provides an avenue for home builders’ products.
Increase home-building activity would be a positive for the U.S. economy, because many would-be home buyers are struggling to find homes in their price range. However, the higher cost of land and labor has meant that builders are still focusing quite a bit on the higher end of the housing market in terms of price, while what’s most needed in the market is more entry-level homes.
“While we are seeing near-term positive market conditions with a 50-year low for the unemployment rate and increased wage growth, we are still under-building due to supply-side constraints like labor and land availability,” NAHB chief economist Robert Dietz said Monday. “Higher development costs are hurting affordability and dampening more robust construction growth.”
Also see: This new trend in house selling could cast a cloud over America’s property market
What they’re saying: “While the pace of housing activity decelerated in 2018, there were no signs of threatening excesses such as significant inventory overhangs or a surge in delinquencies,” Jeffries chief financial economist Ward McCarthy and Jeffries senior money market economist Thomas Simons wrote in a research notes. “The underlying market fundamentals of rising employment, rising income, rising household formations and housing shortages in many regions continue to support overall housing activity.”
Market reaction: Monday’s data didn’t benefit all of the largest publicly-traded home builders. D.R. Horton Inc. DHI, -1.83% rose in morning trades, while Lennar Corp. LEN, -1.55% and PulteGroup PHM, -0.88% were down.
On the other hand, the Dow Jones Industrial Average DJIA, +0.11% and the S&P 500 SPX, +0.03% were both up Monday morning.
