Real Estate

Homebuilder confidence hits highest level in 18 years in December

Key Points
  • This is the highest reading since 1999.
  • Builders now see the business incentives in the GOP tax plan as outweighing other negatives.
Home builder sentiment soars
Home builder sentiment soars

Confidence among the nation's homebuilders jumped unexpectedly in December on expectations for a stronger economy. A monthly reading of homebuilder sentiment rose 5 points to 74. This is the highest reading since 1999.

Fifty is the line between positive and negative sentiment on the National Association of Home Builders' index. November's reading was revised lower by 1 point.

Sentiment stood at 69 in December 2016.

"Housing market conditions are improving partially because of new policies aimed at providing regulatory relief to the business community," said NAHB Chairman Granger MacDonald, a homebuilder and developer from Kerrville, Texas.

Homebuilders had been vehemently opposed to the Republican tax plan, which is set for a final vote in Congress this week. Changes to both the mortgage interest deduction and property tax deductions were seen as removing some of the benefits of homeownership. Apparently, builders now see the business incentives in the plan as outweighing those other negatives.

Of the index's three components, buyer traffic jumped 8 points to 58. Current sales conditions rose 4 points to 81. Sales expectations in the next six months increased 3 points to 79.

Housing starts down 4.7% in September
Housing starts down 4.7% in September

Buyer traffic is likely increasing so much because of the severe shortage of existing homes for sale. Realtors are reporting the lowest supply on record and are not expecting the situation to improve anytime soon. While housing starts did rise steadily throughout 2017, they did so very moderately and are still not close to historically normal levels of production.

"With low unemployment rates, favorable demographics and a tight supply of existing home inventory, we can expect continued upward movement of the single-family construction sector next year," said NAHB Chief Economist Robert Dietz.

Regionally, on three-month moving averages, builder sentiment in the Midwest increased 6 points to 69, in the South it rose 3 points to 72. In the West sentiment increased 2 points to 79 and in the Northeast it rose 1 point to 54.