Published: Thu, May 17, 2018
Research | By Jody Lindsey

Builders Grow More Optimistic as Spring Takes Hold

Builders Grow More Optimistic as Spring Takes Hold

"This leaves eager first-time buyers behind, competing for limited supply of homes".

A separate report from the National Association of Home Builders showed builder confidence in the market for newly built single-family homes rose two points to a level of 70 in May after a downwardly revised April reading, according to the National Association of Home Builders/Wells Fargo Housing Market Index.

An index reading above 50 indicates that more builders view sales conditions as good than view them as poor. "New homes are an important addition in neighborhoods across the country, since many homeowners don't want to list their home for sale out of fear of not finding a new home that fits their needs".

NAHB Chair Randy Noel said that while demand is boosting builders' optimism, record-high lumber prices are making it hard for builders to construct new homes for entry-level buyers.

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The confidence gauge rose in the Midwest to a three-month high and remained unchanged in the Northeast. Additionally, he said that these fundamentals were likely to improve the housing market at a steady pace in the months ahead.

So far, mortgage interest rates have not derailed sales. The average rate on 30-year, fixed-rate mortgages held steady last week at 4.55 percent. Starts were up by 10.5 percent compared to a year earlier, however. "Fundamentally, demand for new homes should remain strong, with the economy operating near full employment and inventory of existing homes constrained in major markets across the country; however, we believe the vast majority of construction continues to focus on market segments with higher price points, meaning construction is unlikely to provide any direct relief to the much more constrained entry level market segments".

"However, the record high cost of lumber is hurting builders' bottom lines and making it more hard to produce competitively priced houses for newcomers to the market", he added.

Following the release of these new retail sales numbers, some analysts cautioned that rising gasoline prices, especially as the summer driving season nears, could blunt other retail spending and overall economic growth. Year-over-year, single-family starts were up 7 percent. The pace of homebuilding is still below its long-run average of about 1.5 million houses and apartments a year. Still, single-family home construction is up 5.2 percent from a year ago.

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