Home Builders Confident But Cautious

Builder confidence reached its highest levels since February 2018, as the National Association of Home Builders (NAHB) reveals the sentiment index rose three points to 71 in October, according to the NAHB/Wells Fargo Housing Market Index (HMI). 

“The housing rebound that began in the spring continues, supported by low mortgage rates, solid job growth and a reduction in new home inventory,” said Greg Ugalde, NAHB Chairman. 

Robert Dietz, NAHB Chief Economist, said the gains in single-family construction during the second half of 2019 is mirrored by the rise in builder sentiment over the past few months. Dietz, though, added builders “continue to remain cautious” due to ongoing supply considerations and concerns over an economic slowdown.

Worries of a possible recession in 2020 continue, as a report by the Council of Foreign Relations earlier this month forecasts for an economic slowdown to occur next year, possibly as soon as the 2020 Presidential Election. 

The report references the years preceding the 2008 financial crisis, which saw a rising gap in the growth in home prices and household income, and a “parallel dynamic is playing out” today.

“In 2018, as in 2005, housing-price growth began falling rapidly, with significant price drops occurring in several major markets … The trend-line in existing-home sales growth has also been down since 2015, tipping into negative territory at the start of last year. Similar drops have preceded nearly every recession since 1970,” the report states. 

All measurements in the HMI saw increases in October. The component measuring sales expectations in the next six months rose six points to 76. Also, the measure of prospective buyers rose four points to 54 in October. 

When looking at regional HMI scores over the past three months, the Northeast posted a one-point gain to 60, the Midwest also increased by a point to 58, the South saw a three-point rise, and the West was also up three points.