New Home Prices To Rise In 2016, Builders Hint
Home builders remain bullish on U.S. housing.
With today’s mortgage rates low and U.S. rents rising, today’s homebuilders expect 2016 to be another strong year for housing.
Builder confidence remains near levels not seen since last decade.
As measured by the National Association of Homebuilders’ Housing Market Index (HMI), homebuilder sentiment reads 60 out of 100 — a “confident” figure which is more than one point above than the index’s 12-month average.
Builders are excited for the 2016 housing market — and for good reason.
The combination of sub-4% mortgage rates, rising rents, and an abundance of loans for buyers with less than 20% down have changed today’s math of “Should I rent or should I buy?”.
More than 6 million homes are expected to sell in 2016, which would be the most in 10 years. And demand for homes is moving prices up.
The best “deals” in new construction housing may be the ones you find today.
Homebuilder Confidence Keeps Climbing
Once monthly, the National Association of Homebuilders (NAHB) surveys its members on current housing market conditions; and their outlook for the housing market’s future.
The results are compiled into the Housing Market Index.
Informally, the report is called the “homebuilder sentiment survey” and it reflects homebuilder attitudes about the nation’s single-family, new construction housing market.
The index is relevant because home builders tend to witness the psychological changes of “Main Street” long before they’re revealed to economists.
There are a multitude of instances in which the NAHB Housing Market Index has hinted at what’s next for U.S. housing before the actual home data revealed itself.
One prominent example occurred last decade and foreshadowed the 2007-2011 housing market downturn.
Recall that mid-decade, U.S. housing was expanding quickly and home values were making new, all-time highs. Mortgage money was loose, as was underwriting. Homeownership rates were near all-time highs.
Home builder confidence, though, was slipping.
Through the last two quarters of 2005, the Housing Market Index dropped 21%. And, remember — this was before the market turned. Values were still rising.
By 2009, the HMI had dropped from an all-time high of 77 to an all-time low of 6.
Today, builder sentiment reads 58.
In the NAHB Housing Market Index, 50 is the inflection point in the index between “good” conditions and “poor” ones; and February’s reading marks the twentieth straight month in which the HMI has logged north of 50.
This hasn’t happened in 10 years.
Buoyed by low mortgage rates and big demand from buyers — first-timers and repeat buyers alike — today’s home builders believe the housing market is “good”.
Buyers should expect fewer price concessions in 2016, and fewer free upgrades. Homes are selling well without such incentives.
Will U.S. Home Buyers Get “Priced Out” In 2016?
The NAHB Housing Market Index is a composite survey. It’s results are based on three distinct questions posed to homebuilder trade group members.
Each question polls a separate facet of a homebuilder’s business.
The monthly readings, as reported by the homebuilder trade group :
- Current home sales activity : Reading of 65 (+4 from one year ago)
- Home sales activity for the next six months : Reading of 65 (+6 from one year ago)
- Buyer foot traffic : Reading of 39 (+0 from one year ago)
For students of housing, it’s the index’s foot traffic reading which may be most relevant.
Current home sales activity and projected home sales activity are both near 10-year bests, but that’s because demand for new homes is strong.
Buyers may know specifically what a mortgage is, they do know that rents are up and it’s squeezing their monthly budgets.
Owning a home can be cheaper than renting in many U.S. cities now.