With current mortgage rates low, optimism among U.S. home builders is growing.
Builder confidence has climbed to its highest level since 2005 as demand for new homes stays strong; and sales levels jump. An abundance of mortgage programs for buyers with less than 20% down has kept homes affordable even as home prices rise.
Some mortgage lenders now quote rates in the 3s. It’s a good time to be U.S. home buyer.
HOMEBUILDER CONFIDENCE JUMPS IN SEPTEMBER
Each month, the National Association of Homebuilders (NAHB) surveys its members about current housing market conditions, and their outlook for the housing market’s future.
The results are compiled into the Housing Market Index (HMI), a report more commonly called the “Homebuilder Confidence Survey”.
The Housing Market Index is meant to reflect homebuilder sentiment for the single-family, new construction housing market. The index is also excellent look into the future of U.S. housing because the nation’s builders often witness psychological changes on Main Street long before they’re ever revealed to economists.
For example, last decade, confidence among builders in the U.S. housing market peaked in June 2005 — roughly 18 months prior to the housing crash.
In real-time, builders has been witnessing buyer foot traffic drop-off and new sales slowing. Their fading confidence foreshadowed the housing market’s eventual troubles.
Today, rising builder confidence foreshadows a recovery.
For September 2014, builder confidence climbed to 59, its best reading since November 2005. Additionally, the Housing Market Index has read above 50 for the third straight month. 50 is the inflection point in the HMI between “good” conditions and “poor” ones.
After a weak spring, builders now believe today’s housing market is “good”.
For U.S. housing, rising builder confidence can be a strong indicator of future strength. However, for active buyers, it can be a poor omen. As builders gain confidence, they may be less likely to make concessions in negotiation.
Buying a newly-built home from a builder? The best time to buy that home may be today. Later this year, prices are expected to be higher.
HOME SALES PREDICTED TO JUMP INTO 2015
The NAHB Housing Market Index is a composite survey. It’s based on three distinct questions posed to members of the homebuilder trade group.
Each question polls a separate facet of a homebuilder’s business. The results are used to build the HMI and, in September, each polled area showed improvement from the month prior.
Builders are selling more homes and demand for new homes is climbing.
The monthly readings, as reported by the homebuilder trade group :
- Current home sales activity : Reading of 63 (+5 from August)
- Home sales activity for the next six months : Reading of 67 (+2 from August)
- Buyer foot traffic : Reading of 47 (+5 from August)
For observers of housing, it’s the Buyer Foot Traffic reading which may be most relevant.
Current home sales activity and projected home sales activity are in-line with last year’s bests, but active buyer foot traffic has reached its highest point since October 2005, suggesting that demand for new homes is strong.
Demand for homes creates competition.
When competition for homes is building, home builders have two choices. Either, they can choose to build more homes to meet buyer demand; or, they can choose to raise prices on homes which are already built.
Lately, builders have been doing both.
Careful to avoid the over-supply of homes which plagued last decade’s market, U.S. home builders have metered their building of new homes in hopes of meeting — but not exceeding — demand from today’s new home buyers.
The strategy has been successful.
Home sales are higher, and so is the average home sale price. Buyers are using low mortgages in conjunction with low-downpayment mortgage program such as the FHA loan to buy homes affordably, but builders remain in control of today’s home prices.
The Housing Market Index shows that builders have leverage over buyers. That position is expected to continue through the end of 2014 and into 2015, at least.