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With new home sales soaring, builder confidence matches record high

With sales of newly built single-family homes soaring, builder confidence in the market has matched an all-time high, the National Association of Home Builders (NAHB) reported.

The NAHB/Wells Fargo Housing Market Index, which gauges builder perceptions of the market via a monthly survey the NAHB has been conducting for 35 years, rose six points to reach an August reading of 78. That ties its highest reading in history, initially set in December 1998.

“Housing has clearly been a bright spot during the pandemic, said NAHB chief economist Robert Dietz, “and the sharp rebound in builder confidence over the summer has led NAHB to upgrade its forecast for single-family starts, which are now projected to show only a slight decline for 2020.

“Single-family construction is benefiting from low interest rates and a noticeable suburban shift in housing demand to suburbs, exurbs and rural markets as renters and buyers seek out more affordable, lower density markets.”

New-home sales bounded to a recent high in June, with the seasonally adjusted annual sales rate hitting 776,000, the strongest pace since July 2007. Indicators continue to suggest that new homes are growing in popularity, accounting for just over 14% of all homes sold in June — a slim decrease from May, but significantly above the 10% average share from the first quarter of 2016 to the first quarter of 2020.

Buyer traffic as perceived by home builders appears to be at an all-time high as well. One of the HMI survey’s component questions asks builders about the traffic of prospective buyers; the index derived from that question hit a reading of 65 in August, its highest ever. That component index had not reached a level of 60 or above since 1998.

NAHB chairman Chuck Fowke did note that the high demand for new homes has driven lumber prices heavily upward since the second quarter.

“The V-shaped recovery for housing has produced a staggering increase for lumber prices, which have more than doubled since mid-April,” Fowke said. “Such cost increases could dampen momentum in the housing market this fall, despite historically low interest rates.”

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