The Homebuilder Outlook on Housing

Builders reported solid gains in confidence in May, according to the latest National Association of Home Builders/Wells Fargo Housing Market Index (HMI). The Index reports that builder confidence is at its highest level since October 2018 after declines in late 2018 due to higher interest rates and concerns over slower growth.

The NAH’s Index notes that affordability problems still persist. Additionally, builders are facing an ongoing labor and lot shortages and rising material costs that are holding back supply and harming affordability. The lower interest rate environment, with mortgage rates sitting at around just above 4 percent, may contribute to gradual improvement in the marketplace.

Construction has been on the rise overall, and March saw a 4.5% increase in new single-family home sales month over month, according to the latest New Home Sales report from the Census Bureau and the Department of Housing and Urban Development. According to the report, March 2019’s seasonally adjusted annual rate of 692,000 new home sales is above February’s 662,000, and is 3.0% above the March 2018 estimate of 672,000.

According to Danielle Hale, Chief Economist for realtor.com, March’s growth indicates potential strengthening of home sales.

“Although weaker March existing home sales followed muted February pending home sales, March new home sales data continues to show strength with 692,000 new home sales, up 4.5% from February and above last year’s sales pace (3.0%),” Hale said. “This trend supports the fact that lower mortgage rates have started to entice buyers this spring and foreshadows a potential strengthening of pending and existing home sales in the months to come. Looking forward, orders should also help bolster builder confidence and boost new construction. We've already seen a slight improvement in builder confidence. Continued moderation in the median price due to an increase in the share of sales in the $200,000-$300,000 category is also a good sign. In this housing market, affordability for buyers is key.”