Real Estate

Homebuilder sentiment bounces back in May, after record plunge in April

Key Points
  • Confidence in the market for single-family, newly built homes rose 7 points to 37 in May, according to the National Association of Home Builders/Wells Fargo Housing Market Index.
  • Anything above 50 is considered positive, so sentiment remains in negative territory.
  • The index stood at 66 in May 2019 and hit a high of 76 in December.
A contractor uses a hammer while working on townhouse under construction at the PulteGroup Metro housing development in Milpitas, California, Oct. 25, 2018.
David Paul Morris | Bloomberg | Getty Images

After the sharpest one-month drop in the history of the index in April, homebuilder sentiment bounced back slightly in May as builders saw a quick rebound in interest from buyers.

Confidence in the market for single-family, newly built homes rose 7 points in May to 37, according to the National Association of Home Builders/Wells Fargo Housing Market Index. Anything above 50 is considered positive, so sentiment remains in negative territory. The index stood at 66 in May 2019 and hit a recent high of 76 in December.

Sentiment plunged an unprecedented 42 points in April, as the coronavirus pandemic shut down much of the economy and job losses soared. Homebuilding continued, deemed an essential business, but buyers pulled back decisively. Now, buyers appear to be shopping again — in person and virtually. Record low mortgage rates are also helping with affordability.

"The fact that most states classified housing as an essential business during this crisis helped to keep many residential construction workers on the job, and this is reflected in our latest builder survey," said NAHB Chairman Dean Mon. "At the same time, builders are showing flexibility in this new business environment by making sure buyers have the knowledge and access to the homes they are seeking through innovative measures such as social media, virtual tours and online closings."

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May NAHB housing market index stronger than expected

All components of the index rose in May but remain in negative territory. Current sales conditions increased 6 points to 42, sales expectations in the next six months jumped 10 points to 46 and buyer traffic rose 8 points to 21.

"As many states and localities across the nation lift stay-at-home orders and more furloughed workers return to their jobs, we expect this demand will strengthen," said NAHB chief economist Robert Dietz. "However, high unemployment and supply-side challenges including builder loan access and building material availability are near-term limiting factors."

The CEOs of several major builders, on recent quarterly earnings calls, have reported an increase in buyer demand, especially from more serious buyers. Mortgage applications to purchase a home have been rising for four straight weeks, and the record-low supply of existing homes for sale continues to benefit the builders.

While there is no specific data yet, real estate agents and builders say they are seeing higher demand from apartment-dwellers in major cities looking to move out to larger homes in the suburbs. Stay-at-home orders have clearly strengthened the desire for more space.

Regionally, builder sentiment in the Midwest increased 7 points to 32. In the South it rose 8 points to 42 and was up 12 points in the West to 44. Sentiment was weakest in the Northeast, falling 2 points to 17.