As more and more Americans continue to migrate out of downtown metro areas and into the suburbs. the demand for single-family homes has yet to slow down.
In November, the housing construction market saw builder confidence soar to a third record-high, as overall builder sentiment reached 90 according to the National Association of Home Builders’ Wells Fargo Housing Market Index. In comparison, the index stood at 71 during the same period a year ago, and rose 60 points since builder confidence dropped to 30 back in April 2020. Moreover, current sales conditions increased by 6 points to 96 in November, sales expectations over the next six months rose by one point to 89, while buyer traffic grew by 3 points to 77.
However, it is worth noting that at the time of the NAHB November survey, 69% of the responses were received before the outcome of the presidential election was officially determined on November 7. This means that the election’s potential impact on homebuilder sentiment will not be fully reflected until December. Nonetheless, the pandemic has caused some significant shifts in homebuyer behaviour, which has lead to a surging US housing market despite a subpar economic landscape.
Record low mortgage rates, coupled with rising coronavirus infections and increasing social unrest plaguing metro regions of the US, has sparked a new shift in home-buying preferences among Americans. The demand for suburban and rural demographics, as well as the increased need for more space to conduct remote work, exercise, schooling, and spend more time with family has caught homebuilders off guard. According to NAHB Chairman Chuck Fowke, new home sales have soared by 17% since the start of 2020, and as a result, the likelihood for increased supply chain issues is growing.
Although sales contracts continue to be signed at a strong pace, building material and lot availability is starting to become constrained. Rising lumber prices are leading to increased building costs, while the potential for regulatory policy changes as early as next year could all play a role in how efficiently housing supply is able to keep up with demand. However, recent positive news surrounding coronavirus vaccines could spur an upward shift in interest rates, which could ultimately put the breaks on the soaring home-buying activity that has thus far remained immune to the pandemic-induced economic contraction.
Information for this briefing was found via the NAHB. The author has no securities or affiliations related to this organization. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security. The author holds no licenses.