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Home builder confidence hits 8-month high in November

Key Points
  • Home builder confidence rose two points in November to the highest since March.
  • Builders are seeing higher traffic and sales.
  • Shortages of finished lots and labor continue to plague the industry.

The nation's home builders may not be happy with the Republican tax plan, but they are seeing more buyers, and that is boosting confidence.

A monthly reading of home builder sentiment rose two points in November to 70, according to the National Association of Home Builders. This comes after rising four points in October.

Contractors secure a wall section on a home under construction at the Toll Brothers Cantera at Gale Ranch housing development in San Ramon, Calif.
David Paul Morris | Bloomberg | Getty Images

Anything above fifty is considered positive sentiment. November's reading is the highest since March of this year and the second highest on record since before the recession. The index stood at 63 in November 2016.

"Demand for housing is increasing at a consistent pace, driven by job and economic growth, rising homeownership rates and limited housing inventory," said NAHB Chief Economist Robert Dietz. "With these economic fundamentals in place, we should see continued upward movement of the single-family housing market as we close out 2017."

Home builders have not been as pleased with the Republican tax plans in both the House and the Senate. They are opposed to changes in the mortgage interest deduction and property tax deductions. Both, they claim, will make home buying less attractive.

Pending home sales unchanged in September

Builders had been incredibly optimistic just after the 2016 presidential election, expecting that the new administration would ease regulations, which have been adding to builder costs. Instead, they continue to struggle with a growing labor shortage, as the administration's immigration stance has dissuaded immigrant workers from coming to the U.S.

Of the index's three components, current sales conditions rose two points to 77. Buyer traffic also increased two points to 50, which is the first time in six months that this component has been in positive territory. Sales expectations over the next six months fell one point to 77.

Home builders are clearly benefiting from a severe shortage of existing homes for sale. While new construction is more expensive, move-up buyers today are left with little choice.

Builders are also benefiting from a new type of first-time buyer. Millennials have waited longer to become homeowners, meaning more first-time buyers are older and have had more time to save for a down payment. Some are skipping starter homes and going straight to a more expensive, new product.

Regionally, on a three-month moving average, builder confidence in the Northeast jumped five points to 54 and rose one point to 69 in the South. Both the West and Midwest remained unchanged at 77 and 63, respectively.