Builder Confidence Skyrockets, Matching 1988 Record

Builders have tied their 32-year old record for confidence as measured by the National Association of Home Builders/Wells Fargo Housing Market Index (HMI). The Index, which has been conducted by NAHB for 35 years, jumped by 6 points in August to 78 and is also 6 points higher than it was in March, before the COVID-19 pandemic shut down some construction sites and shut in much of the buying public. The last time the HMI was this high was in December 1988. Builders also set a survey high with their perceptions of buyer traffic.

Derived from a monthly survey that NAHB has been conducting for 30 years, the NAHB/Wells Fargo Housing Market Index 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 August. The HMI index gauging current sales conditions rose six points to 84, the component measuring sales expectations in the next six months increased three points to 78 and the measure charting traffic of prospective buyers posted an eight-point gain to reach its highest level ever at 65.

NAHB chief economist Robert Dietz said the August reading is a sign that housing continues to lead the economy forward. The demand for new single-family homes continues to be strong, he said, and low interest rates and a focus on the importance of housing has stoked buyer traffic to all-time highs as measured on the HMI. Single-family construction is also benefiting from a noticeable shift in housing demand to suburbs, exurbs and rural markets as renters and buyers seek out more affordable, lower density markets. He cautioned, however, that a "staggering increase" in lumber prices, which have more than doubled since mid-April, could dampen momentum in the housing market this fall.

Looking at the three-month moving averages for regional HMI scores, the Northeast jumped 20 points to 65, the Midwest increased 13 points to 63, the South rose 12 points to 71 and the West increased 15 points to 78.