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Homebuilder sentiment soars on strong sales

  • U.S. homebuilders bounced back from a recent funk, as current sales and sales expectations leaped forward.
  • The National Association of Home Builders/Wells Fargo Housing Market Index now stands at 68. Anything above 50 is considered positive sentiment.
  • Builders say they are seeing rising demand from buyers, who seem ready to pay a premium for new construction.

U.S. homebuilders bounced back in August from a recent funk, as current sales and sales expectations leaped forward.

A monthly index of builder sentiment rose 4 points to the highest level since May. The National Association of Home Builders/Wells Fargo Housing Market Index now stands at 68. Anything above 50 is considered positive sentiment. The index was at 59 last August.

Builder sentiment had jumped to a cyclical high in March, following a move by the Trump administration to ease water regulations. Builders say over-regulation at the federal, state and local levels have hampered production and driven up the cost of new construction. Sentiment had dropped more recently due to rising material costs, especially lumber. The Trump administration imposed a tariff on Canadian lumber, causing the price to spike.

Builders say over-regulation at the federal, state and local levels have hampered production and driven up the cost of new construction. Sentiment had dropped more recently due to rising material costs, especially lumber. The Trump administration imposed a tariff on Canadian lumber, causing the price to spike.

Now it appears builders are less concerned with policy and more enthused about the economy. They say they are seeing rising demand from buyers, who seem ready to pay a premium for new construction. New home sales in June were 9 percent higher compared with a year ago, according to the latest reading from the U.S. Census.

"This is due to ongoing job and economic growth, attractive mortgage rates, and growing consumer confidence," said NAHB Chairman Granger MacDonald, a homebuilder and developer from Kerrville, Texas.

The index's three components all saw gains in August. Current sales conditions rose 4 points to 74. Sales expectations over the next six months jumped 5 points to 78, and buyer traffic increased 1 point to 49 — the only component still in negative territory.

The new-home industry is also benefiting from a severe shortage of existing homes for sale. Most buyer demand, however, is on the lower end of the market, where builders have trouble meeting margins.

Construction is still running well behind even normal levels, never mind the strong, pent-up demand. Most builders are also still concentrating on the move-up market, rather than entry-level.

"The fact that builder confidence has returned to the healthy levels we saw this spring is consistent with our forecast for a gradual strengthening in the housing market," said Home Builders Chief Economist Robert Dietz.

"GDP growth improved in the second quarter, which helped sustain housing demand. However, builders continue to face supply-side challenges, such as lot and labor shortages and rising building material costs."

Regionally, on a three-month moving average, builder sentiment in the Northeast rose 1 point to 48. The West, South and Midwest were unchanged at 75, 67 and 66, respectively.

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