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Diana Olick

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KEY POINTS

  • Builder sentiment jumped a striking 21 points in June to 58, the largest monthly increase ever in the National Association of Home Builders/Wells Fargo Housing Market Index.
  • Any reading above 50 indicates a positive market. In April, it plunged a record 42 points to 30.
  • Of the index’s three components, current sales conditions jumped 21 points to 63. Sales expectations in the next six months rose 22 points to 68. Buyer traffic more than doubled from May to June, from 22 to 43.

A faster-than-expected turnaround in homebuyer demand, following a sharp drop-off at the start of the coronavirus pandemic, has the nation’s homebuilders bullish on their business again.

Builder sentiment jumped a striking 21 points in June to 58, the largest monthly increase ever in the National Association of Home Builders/Wells Fargo Housing Market Index. Any reading above 50 indicates a positive market. In April, it plunged a record 42 points to 30.

“As the nation reopens, housing is well-positioned to lead the economy forward,” said NAHB Chairman Dean Mon, a homebuilder and developer from Shrewsbury, New Jersey. “Inventory is tight, mortgage applications are increasing, interest rates are low and confidence is rising.”

Meanwhile, mortgage applications to purchase a newly built home jumped 10.9% annually in May, according to the Mortgage Bankers Association.

Of the homebuilder index’s three components, current sales conditions jumped 21 points to 63. Sales expectations in the next six months rose 22 points to 68. Buyer traffic more than doubled from May to June, from 22 to 43. This last component was surprising, given how many builders reported more online inquiries and virtual tours during the pandemic.

This report comes on the heels of a better-than-expected quarterly earnings report from one of the nation’s largest public homebuilders, Lennar. Chairman Stuart Miller said the company had stopped its new home starts and stopped purchasing land in March, only to have to reverse course unexpectedly.

“So we know that as we get to the fourth quarter we’re going to be a little short on our closings, but nonetheless, we rebooted pretty quickly as the market started showing signs of recovery in housing,” he said. “I think there will be a little bit of a pause in our numbers, but it will come back very quickly.”

Miller also indicated that the stories of urban flight are real, as people are rethinking the way they want to live in an age of lockdowns and work-from-home orders. That trend appears to be playing out among all the builders.

“Builders report increasing demand for families seeking single-family homes in inner and outer suburbs that feature lower density neighborhoods,” said NAHB Chief Economist Robert Dietz. “At the same time, elevated unemployment and the risk of new, local virus outbreaks remain a risk to the housing market.”

Regionally, builder sentiment in the Northeast surged 31 points to 48, and 20 points to 62 in the South. In the Midwest it rose 19 points to 51, and in the West it rose 22 points to 66.

Author: Diana Olick

Source: CNBC: Homebuilder sentiment posts biggest monthly surge ever, a sign housing is rebounding from coronavirus

A stronger economy and a severe housing shortage have the nation’s homebuilders feeling better than they have in two decades.

Builder confidence in the newly built, single-family home market jumped 5 points in December to 76, the highest reading since June 1999, according to the National Association of Home Builders/Wells Fargo Housing Market Index. Anything above 50 is considered positive.

November’s reading was also revised higher by 1 point. The index stood at 56 last December. At the worst of the housing crash, in 2009, builder sentiment hit a low of just 8.

“Builders are continuing to see the housing rebound that began in the spring, supported by a low supply of existing homes, low mortgage rates and a strong labor market,” said NAHB Chairman Greg Ugalde, a homebuilder and developer from Torrington, Conn.

Builders’ confidence is clearly based on what they’re seeing in their showrooms. Of the index’s three components, current sales conditions rose 7 points to 84, sales expectations in the next six months rose 1 point to 79 and buyer traffic increased 4 points to 58.

All, however, is not perfect in the homebuilding market. Builders could likely be doing even better if they didn’t face so many headwinds.

“While we are seeing near-term positive market conditions with a 50-year low for the unemployment rate and increased wage growth, we are still underbuilding due to supply-side constraints like labor and land availability,” said NAHB chief economist Robert Dietz. “Higher development costs are hurting affordability and dampening more robust construction growth.”

Regionally, on a three-month moving average, builder sentiment in the Northeast fell 2 points to 61, increased 5 points in the Midwest to 63, gained a point in the South to 76 and increased 3 points in the West to 84.

Author: Diana Olick

Source: CNBC: Homebuilder confidence jumps to highest level in 20 years

Home sales will drop, the housing shortage could become the worst in U.S. history, and home values will shrink in some cities. That’s the 2020 forecast from realtor.com, which holds one of the largest databases of housing statistics available.

Sales of existing homes will fall 1.8% from 2019, according to the forecast. Home prices will flatten nationally, increasing just 0.8% annually, but prices will fall in a quarter of the 100 largest metropolitan markets, including Chicago, Dallas, Las Vegas, Miami, St. Louis, Detroit and San Francisco.

It is a seemingly contrary assessment, given the current strength of the economy and of homebuyer demand, but the dynamics of this housing market are unlike any other — the result of a housing crash unlike any other.

“Real estate fundamentals remain entangled in a lattice of continuing demand, tight supply and disciplined financial underwriting,” said George Ratiu, senior economist at realtor.com. “Accordingly, 2020 will prove to be the most challenging year for buyers, not because of what they can afford but rather what they can’t find.”

It’s all about supply. The inventory of homes for sale has been falling steadily for several years and is at its lowest on the lowest end of the market. That caused prices to overheat, weakening affordability. The 2020 forecast offers no relief, in fact just the opposite. As demand heats up in the spring, driven by the growing number of millennials entering the market, the supply of homes for sale could hit its lowest in history. The situation will only be exacerbated by the baby boom generation, which, according to the forecast, will have little incentive to sell, given weaker home prices.

“While millennials share many similar traits with prior generations, they have been marked by a delay in major life milestones, including starting a family and purchasing a home,” said Ratiu. “Millennials not only purchased a higher-priced first home but faced with growing families, many of them skipped the traditional starter home and moved straight to a mid-priced, trade-up home.”

That dynamic will continue in 2020 and added pressure on the middle range of the market. Millennials will dominate the housing market, accounting for 50% of all mortgages by spring, according to the forecast. Just short of 5 million millennials will turn 30, which is when many people buy their first home, and the oldest will turn 39, generally when family dynamics kick in and people move to larger homes in the suburbs.

Single-family construction will increase in 2020, up 6% annually, according to the forecast, but that will not alleviate the supply crunch. Part of that is due to the very slow recovery of the nation’s homebuilders, who began rebuilding their businesses after the historic housing crash mostly in the move-up and luxury markets.

On the bright side, builders are well-positioned to increase profits thanks to the shortage of existing homes for sale.

“We believe homebuilders are poised to enter 2020 with some of the strongest supply/demand fundamentals we’ve seen in the 10-year housing recovery to date,” Raymond James housing analyst Buck Horne wrote in an October note to investors. “Homebuyers responded convincingly to lower mortgage rates this summer, leading to a re-acceleration of home price appreciation across most markets.”

Sellers, however, have yet to meet the incremental demand with additional new supply in most markets, Horne noted.

More homeowners are staying longer, according to real estate brokerage Redfin, which analyzed Census data. The typical American homeowner has spent 13 years in their home, up from eight years in 2010, as more households are choosing to age in place.

The supply of entry-level homes is also well below historical levels because during the foreclosure crisis, investors bought millions of distressed properties and turned them into rentals. The bulk of these properties were on the lower end of the price spectrum. The expectation was that as home prices recovered, investors would sell the homes, pocket the profits and return the housing supply to its previous level. That did not happen. The single-family rental market was so strong that investors held the homes, built large-scale, multicity service and maintenance platforms and created a new asset class for even bigger investors to fuel.

“The supply of rental properties has risen in tandem with demand, while new residential construction has lagged, placing the rental market in a good position to offer alternatives for buyers priced out of their markets,” said Ratiu. “However, the affordability challenge will continue to cast a shadow over housing in 2020, as both home prices and rents remain elevated.”

Author: Diana Olick

Source: CNBC: Next year will be hard on the housing market, especially in these big cities

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