Building Confidence is at Its Highest In Over 20 years

The National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index revealed some positive statistics for homebuilding in the near future. Currently, homebuilder confidence has reached to 76 – a 5-point increase, for the single-family home market, making it the highest it’s been since 1999. This is a drastic change from a decade ago when it reached a single-digit low of 8 in 2009. This is a great sign for real estate in 2020 as more single-family homes continue to be in high demand for buyers.

The market is no stranger to serious inventory shortage. Accessibility tightened specifically for these much-needed entry-level units due to unavailability or longer residential occupancy, raised price points, and unmet wage growth. With a consistent lack of inventory and the increase of material costs, new construction has lagged. As of 2018, construction costs saw a 23.6 percent increase nationally, since 2004 and it has continued to grow. Factors like employment shortage and increased wage upped the costs to build overall. New buyers fell to the sidelines as they watched home prices continue to climb. Builders began focusing on the higher-cost market – where sales were more present – and not so much on ‘replenishing’ single-family or starter home units.

Demand is still at a high but looking into 2020, the economy continues to look strong and low rates are holding steady. This gives builders more confidence than in recent years and construction pace should begin to accelerate. Additionally, more building permits have become available across the nation over this last year rising to almost 8 percent. For single-family homes, permits saw an almost 3 percent increase since Fall 2018.

New-home sales have shown higher percentages towards the second half of this year. In October, 322,000 homes were for sale, which was a 0.3 percent increase from September. Existing-home sales saw a boost with a 1.9 percent increase for a 5.46 million rate and that is expected to grow in the next few years. The low-mortgage rate trend has been a significant factor and builds hope for sales to increase.

Current home sales along with the sales expectations and buyer traffic are driving this change in sentiment. Sales conditions rose 7 points to 84, sales expectations rose 1 point to 79 (for over the next 6 months), and buyer traffic is up 4 points to 58, according to CNBCNews.

In this last quarter of 2019, total housing starts have increasingly become more positive. In October, housing starts began to rebound and rose to 3.8 percent. Multi-family home construction was up 8.6 percent and single-family home starts at 2 percent. Some building firms have shifted their goals to focus on entry-level, single-family homes, in the last few years. For example, PulteGroup out of Atlanta mentioned growing sales to 35 percent up from the current average of 29 percent.

Builder Online called this a “Recalibrating Toward Entry-Level: Homebuilders’ distinct new emphasis on entry-level offerings in 2019 has drawn attention back to the potential resiliency of the housing sector. In fact, with a consistent undersupply of homes—numbers range from a shortfall of 1.3 to 2.5 million units nationally—observers say conditions could be right for housing to act as an economic stimulator for the broader economy, instead of just being a beneficiary of it.”

In December of 2018, builder confidence was stated at 56. The NAHB/Wells Fargo says anything over 50 is a positive. With builder confidence up 20 points at a 20 year high, the market is poised for more construction, multi-family options, and more affordable housing to move the market.

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This article is intended to be accurate, but the information is not guaranteed. Please reach out to us directly if you have any specific real estate or mortgage questions or would like help from a local professional. The article was written by Sparkling Marketing, Inc. with information from resources like CNBC and Forbes.