U.S. Homebuilder Sentiment Hits Highest Level in 18 Years

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Confidence among U.S. homebuilders jumped in December to the highest level since July 1999, exceeding all analyst estimates, as a growing economy boosts housing demand, according to data Monday from the National Association of Home Builders/Wells Fargo.

Highlights of Homebuilder Sentiment (December)

  • Housing market index rose to 74 from a downwardly revised 69 in Nov.; median est. was 70, with forecasts ranging from 68 to 72
  • Current sales gauge increased to 81, highest since 1999, from 77; future sales index rose to 79, highest since 2005, from 76
  • Regional index for the Midwest surged 11 points to 76, highest in data back to 2004

Key Takeaways

The surprisingly strong reading shows developers expect demand to advance amid steady economic growth and a tightening job market. Mortgage rates remain close to record lows, making borrowing attractive for prospective buyers, while the homebuilders also cited easier regulation under President Donald Trump as helping the housing market.

Demand for properties is rising, with a gauge of homebuyer traffic rallying to a 19-year high, according to the survey. A host of data this week will give a fuller picture of the housing market, including sales of new and existing homes, as well as groundbreakings and building permits.

The Republican tax legislation, which is supported by the homebuilders but has been opposed by the National Association of Realtors, has the potential to reduce demand because of changes to deductions for mortgage interest and state and local taxes. A separate report Monday from NAR showed renters were slightly less optimistic this quarter about buying a home than in the previous period, as low supply boosts prices.

What Our Economists Say...

The homebuilders gauge “seems really surprising given the recent updates on the tax reform, which actually creates some questions about housing demand going forward. Nonetheless, it seems like lower taxes, higher home prices, and robust labor markets are outweighing reduced homeownership incentives.”

--Yelena Shulyatyeva, Bloomberg Economics

Click here for the full audio reaction.

Officials’ Views

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

“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,” NAHB Chief Economist Robert Dietz said in the same statement.

Other Details

  • Regional index for the West jumped eight points to 85; South increased three points to 75, highest since 2005
  • Index for Northeast declined eight points to 53
  • Readings greater than 50 indicate more respondents reported good market conditions

— With assistance by Chris Middleton

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