Real Estate

Homebuilder sentiment up 2 points in August on shortage of existing homes

A shortage of existing homes for sale is boosting the market for newly-built homes, and fueling confidence among builders right along with it.

A monthly reading of builder sentiment rose two points to 60 in August; anything above 50 is considered positive on the National Association of Home Builders/Wells Fargo Housing Market Index. July's reading was revised down one point. The index stood at 61 in August of 2015.

"Builder confidence remains solid in the aftermath of weak GDP reports that were offset by positive job growth in July," said NAHB chief economist Robert Dietz. "Historically low mortgage rates, increased household formations, and a firming labor market will help keep housing on an upward path during the rest of the year."

Contractors install siding on a house under construction in the Norton Commons subdivision of Louisville, Kentucky.
Luke Sharrett | Bloomberg | Getty Images

Not all components of the NAHB index, however, saw gains. Current sales conditions rose two points to 65, and sales expectations over the next six months increased one point to 67, but buyer traffic fell one point to 44, still mired in negative territory.

Housing affordability, which has been weakening amid rising prices, is playing into the drop in buyer traffic. Higher prices have more than canceled out the benefits of falling mortgage rates this summer.

Just 62 percent of both new and existing homes sold between the beginning of April and end of June were affordable to families earning the U.S. median income of $65,700, according to the NAHB; this is down from the 65 percent in the first quarter. Several major housing markets are seeing record high median home prices, and the premium for a newly built home is widening.

"Regulatory hurdles and rising costs for buildable lots and skilled labor continue to put upward pressure on the cost of building a home," said NAHB Chairman Ed Brady, a homebuilder and developer from Bloomington, Illinois.

On a three-month moving average, builder confidence in both the South and Northeast rose two points to 63 and 41 respectively. Confidence among builders in the West was unchanged at 69 and in the Midwest dropped two points to 55.

Single family housing starts have been rising steadily but are still well below historical norms. July's read on starts and building permits is set for release Tuesday at 8:30 a.m. ET.