The nation’s single-family homebuilders are feeling very positive about their business, but a monthly sentiment indicator fell in November from a recent high.
The national association of Home Builders/Wells Fargo Housing Market Index (HMI) fell 1 point to 70, after rising steadily since June to the highest level of the year last month. Anything above 50 is considered positive. The index measured 60 last November.
“Single-family builders are currently reporting ongoing positive conditions, spurred in part by low mortgage rates and continued job growth,” said NAHB Chairman Greg Ugalde, a homebuilder and developer from Torrington, Connecticut. “In a further sign of solid demand, this is the fourth consecutive month where at least half of all builders surveyed have reported positive buyer traffic conditions.”
Of the index’s three components, current sales conditions fell 2 points to 76, traffic of prospective buyers dropped 1 point to 53 and sales expectations in the next six months rose 1 point to 77.
Sentiment, as well as housing starts, are stronger this year thanks in part to much lower mortgage interest rates. The average rate on the 30-year fixed mortgage was around 5% in November 2018 and is now hovering just below 4%. Homebuilders are also finally starting to pivot more toward less pricey, starter homes. Several roadblocks remain at that price point.
“We have seen substantial year-over-year improvement following the housing affordability crunch of late 2018, when the HMI stood at 60,” said NAHB chief economist Robert Dietz. “However, lot shortages remain a serious problem, particularly among custom builders. Builders also continue to grapple with other affordability headwinds, including a lack of labor and regulatory constraints.”
Stocks of the big public builders have been on a tear all year, rising as mortgage rates fall. Most builders have also been reporting solid beats in quarterly earnings, as buyer demand surges thanks to job growth and a severe shortage of affordable, existing homes for sale
The iShares US Home Construction ETF is up 50% year to date.
Regionally, on a three month moving average, homebuilder sentiment rose 2 points to 62 in the Northeast and rose 3 points in the West to 81. In the South, sentiment moved 1 point higher to 74, while sentiment in the Midwest was unchanged at 58.