Housing continues to be a bright spot within the larger economic recovery, and builders continue to take notice.
The Housing Market Index (HMI) jointly maintained by Wells Fargo and the National Association of Home Builders (NAHB) rose five points to a reading of 90 in November, reaching yet another new record high. The index measures builder perceptions of the marketplace via a monthly NAHB survey; readings over 50 indicate that more builders view conditions positively rather than poorly.
Builder sentiment continues to be buoyed by strong market fundamentals and a continuing consumer shift towards more space and less density, said NAHB Chairman Chuck Fowke.
“Historically low mortgage rates, favorable demographics and an ongoing suburban shift for homebuyer preferences have spurred demand and increased new home sales by nearly 17% in 2020 on a year-to-date basis,” Fowke said, although he also remarked that material constraints and potential regulatory policy risk loom as headwinds for the future.
November is the third straight month of all-time highs for the index. October’s reading of 85 was briefly the peak index level since the NAHB began conducting its survey more than three decades ago.
The survey asks builders to gauge their view of current single-family home sales as “good,” “fair,” or “poor,” and does the same for sales expectations for the following six months. The survey then asks builders to assess traffic of prospective buyers on a scale ranging from very low to very high. The results of each question are used to calculate sub-indices for HMI; in November, each of those indices logged their highest readings ever.
“Another record high for the HMI reflects that housing is a bright spot for the economy,” said Robert Dietz, chief economist for the NAHB. “However, affordability remains an ongoing concern, as construction costs continue to rise and interest rates are expected to move higher as more positive news emerges on the coronavirus vaccine front. In the short run, the shift of housing demand to lower density markets such as suburbs and exurbs with ongoing low resale inventory levels is supporting demand for home building.”
Notably, the NAHB indicated that 69% of survey responses were received before media outlets called the presidential election for Joe Biden on November 7. The results of the election — and builder perceptions of its outcome on housing market conditions — will be more fully reflected in December’s HMI reading.
