Builder Confidence Posts Solid Gain Following Last Month’s Historic Drop

In a signal that the housing market is showing signs of stabilizing and gradually moving forward in the wake of the COVID-19 pandemic, builder confidence in the market for newly-built single-family homes increased seven points to 37 in May, according to the latest NAHB/Wells Fargo Housing Market Index (HMI) released today. The rise in builder sentiment follows the largest single monthly decline in the history of the index in April.

“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.”

“Low interest rates are helping to sustain demand,” said NAHB Chief Economist Robert Dietz. “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. Other indicators that suggest a housing rebound include mortgage application data that has posted four weeks of gains and signs that buyer traffic has improved in housing markets in recent weeks. However, high unemployment and supply-side challenges including builder loan access and building material availability are near-term limiting factors.”

Derived from a monthly survey that NAHB has been conducting for 30 years, the NAHB/Wells Fargo HMI gauges builder perceptions of current single-family home sales and sales expectations for the next six months as “good,” “fair” or “poor.” The survey also asks builders to rate traffic of prospective buyers as “high to very high,” “average” or “low to very low.” Scores for each component are then used to calculate a seasonally adjusted index where any number over 50 indicates that more builders view conditions as good than poor.

All the HMI indices posted gains in May. The HMI index gauging current sales conditions increased six points to 42, the component measuring sales expectations in the next six months jumped 10 points to 46 and the measure charting traffic of prospective buyers rose eight points to 21.

Looking at the monthly average regional HMI scores, the Midwest increased seven point to 32, the South rose eight points to 42 and West posted a 12-point gain to 44. The Northeast fell two points to 17.

HMI tables can be found at nahb.org/hmi. More information on housing statistics is also available at housingeconomics.com.