Homebuilder sentiment sets another record high in October

The nation’s homebuilders are seeing no fall chill in demand from buyers, and that has the industry more confident than ever.

Builder sentiment set a record high for the second month in a row, jumping to 85 in October on the NAHB/Wells Fargo Housing Market Index. September and October are the first two months the index has ever been above 80. Anything above 50 is considered positive. The index stood at 71 in October 2019.

All three components of the index either set records or matched their highest readings. Current sales conditions rose 2 points to 90. Sales expectations in the next six months increased 3 points to 88, and buyer traffic was unchanged at 74.

“Traffic remains high and record-low interest rates are keeping demand strong as the concept of ‘home’ has taken on renewed importance for work, study and other purposes in the Covid era,” said NAHB Chairman Chuck Fowke, a builder from Tampa, Florida. “However, it is becoming increasingly challenging to build affordable homes as shortages of lots, labor, lumber and other key building materials are lengthening construction times.”

Builders slowed or stopped production in the first months of the pandemic and were caught off guard by the sudden consumer demand that hit their market in May. Existing land pipelines were therefore depleted much faster than builders expected.

“In many markets, finished lots are in short supply or nonexistent, and competition is fierce,” John Burns of John Burns Real Estate Consulting wrote in a recent report.

Builders are struggling to ramp up production, and while housing starts and building permits are rising slowly, they are not even close to meeting demand. Mortgage rates show no sign of rising markedly any time soon, so buyers are still streaming into model homes.

“The housing market continues to be a bright spot for the economy, supported by increased buyer interest in the suburbs, exurbs and small towns,” said NAHB chief economist Robert Dietz. “New single-family home sales are outpacing starts by a historic margin. Bridging this gap will require either a gain in construction volume or reductions in available inventory, which is already at a historic low in terms of month’s supply.”

Looking at the three-month moving averages for regional HMI scores, the Northeast increased 6 points to 82, the Midwest increased 3 points to 75, the South rose 3 points to 82 and the West increased 5 points to 90.