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Americans are making more money, and that is making the nation's homebuilders feel a lot better about their business.
A monthly survey of builder confidence jumped a striking six points in September to the highest level in nearly a year. The National Association of Home Builders/Wells Fargo Housing Market Index (HMI) hit 65; anything above 50 is considered positive sentiment. August's reading was revised down one point. The index stood at 61 one year ago.
"As household incomes rise, builders in many markets across the nation are reporting they are seeing more serious buyers, a positive sign that the housing market continues to move forward," said NAHB Chairman Ed Brady, a homebuilder and developer from Bloomington, Ilinois. "The single-family market continues to make gradual gains and we expect this upward momentum will build throughout the remainder of the year and into 2017."
Of the index's three components, current sales rose six points to 71, sales expectations in the next six months rose five points also to 71. Buyer traffic jumped four points but still stands just below positive territory at 48.
Home sales are usually strongest in the spring and fall, but Bob Youngentob, president and co-founder of EYA, a developer in the Washington, D.C. metropolitan area, said he was surprised at the uptick this summer.
"We are definitely feeling better. The summer was excellent. Sales and traffic picked up strongly. It seems like there is a lot of enthusiasm in the buyers," said Youngentob. "Interest rates have been low for a long time, and there is concern they may rise. Buyers on the fence are finally motivated to make a move."
He is not, however, able to raise prices much, and for most builders that has been the case. With costs rising for materials, that puts pressure on margins.
"I just don't think there has been enough consistent demand to get too aggressive with prices. We have been relatively conservative in price increasing," he added.
While builders are clearly feeling much better about their buyers, some are not as happy about their ability to meet the growing demand.
"With the inventory of new and existing homes remaining tight, builders are confident that if they can build more homes they can sell them," said NAHB chief economist Robert Dietz. "Though solid job creation and low interest rates are also fueling demand, builders continue to be hampered by supply-side constraints that include shortages of labor and lots."
Regionally, on a three-month moving average, the Northeast and South each registered a one-point gain to 42 and 64, respectively. Confidence among builders in the West rose four points to 73. The Midwest was unchanged at 55.