In the News – Builder Confidence Ends the Year Strong

In the News – Builder Confidence Ends the Year Strong

The NAHB/Wells Fargo Housing Market Index (HMI) ended 2019 on a high note after a weak finish in 2018. The December reading for the HMI was 76 — the highest score in 20 years. Builder sentiment is being fueled by persistently low levels of resale inventory and solid economic conditions, including low interest rates, historically low unemployment and accelerating wage growth. By comparison, the HMI was at a level of 56 in December 2018 because of higher mortgage interest rates and a more hawkish Federal Reserve.

Mirroring the HMI, single-family starts increased 2.4% in November, while apartment construction posted an almost 5% gain for the month. With only December data outstanding, 2019 year-to-date single-family starts ended the 11-month period down just 0.4% compared to the same period in 2018. When the December data are recorded, we expect single-family starts to end 2019 approximately flat, thanks to a second-half acceleration. This is clearly seen in the November single-family home sales report, which found new home sales were up almost 10% on a year-to-date basis, and inventory declining to a 5.4-month supply, pointing to future construction growth.

Although most housing indicators, including the most recent pending home sales report from NAR, are showing year-over-year gains and signaling additional expansion, it is important to keep in mind the degree of underbuilding that has taken place during the last decade. Indeed, a recent NAHB report examining the last 10 years of home building found that on a population-adjusted basis, single-family construction in the 2010s operated at about half the pace of the uniform decadal rate that prevailed during the 1980s, 1990s and 2000s. This degree of underbuilding and signs of a Federal Reserve on hold with respect to future interest rate hikes indicate that home construction will expand in 2020.

–NAHB Chief Economist Robert Dietz
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