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Builder Confidence Still Strong: Is It A Good Time To Buy A Home?

Rising Demand for Homes Boosts Builder Confidence

Builder confidence is often a good indicator of the state of the housing market, and when prospective buyers should make a move. But the opposite might also be true. Is now a good time for you to buy in WA, ID, OR, or CO? This article will outline the state of builder confidence over the last six months and will provide some suggestions about whether or not today is a good time to buy in Washington.

In This Article:

  • What is the current state of home builder confidence?
  • What factors are affecting The Home builder Index?
  • How COVID-19 has impacted the housing market?
  • Does the Boost in Builder Confidence mean it is a good time to purchase a home in WA, OR, ID, or CO?

Often, real estate market experts point to the feelings of the nation’s home builders as a bell-weather signaling the health of the housing sector.

At the onset of the coronavirus pandemic, readings indicated that home builders were not feeling too confident. Moreover, the National Association of Home Builders / Wells Fargo Housing Market Index (HMI) around that time highlighted the fact that new single-family home construction plummeted 42 points to 30, compared to pre-pandemic readings of 72.

Prior to COVID-19, builder sentiment levels had held steady in the low- to mid-70s over toward the latter half of 2019. Those were healthy numbers, signifying strong confidence among home builders, and creating a great environment for home buyers to get into the real estate market.

April 2020 Home Builder Confidence

The National Association of Home Builders’ Index saw its biggest monthly decrease back in April. Since hindsight is 20/20, pun intended, it was clear that COVID-19 pandemic wreaked havoc on the housing market, creating negative home builder sentiment at that time.

As previously mentioned, the monthly index is based on the NAHB’s monthly survey to builders, asking them to rate multiple measures in regard to the real estate market. Readings over 50 points indicate improving confidence, while numbers under that level signify the opposite. April 2020 marked the first time since 2014 that the index dipped under 50.

The HMI index measuring current sales conditions dropped 42 points to 30.

The measuring of prospective buyers declined 43 points to 13.

The measuring of sales expectations over the next six months decreased 39 points to 36.

As per the three-month moving averages for regional readings, the Northeast dropped 34 points to 19, the Midwest declined 42 points to 25, the South also declined 42 points to 34, and the West decreased 47 points to 32.

Other regional factors that heavily influenced builder confidence at that time included difficulties in finding building sites and labor required for building new homes. Moreover, as of April 2020, the costs for building materials was also having a significant impact on overall home buying ability stats and home prices in general.

Despite such negative numbers, there was definitely a demand for homes across the nation and home prices continued to increase over the spring and into the summer.

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November 2020 Home Builder Confidence

Yet, just 6 months later, demand for homes boosted builder confidence and housing market conditions reached a new record high in November according to the National Association of Home Builders. November’s index reading of 90 was five points higher than in October, which was definitely a turnaround for market conditions since readings fell below 50 in April and May.

Component readings for the Housing Market Index also were up from April and rose six points to 96 for current housing market conditions and one point to 89 for builder confidence in home sales in the next six months. Furthermore, builder confidence in buyer traffic in new housing developments rose three points to 77. Readings for buyer traffic typically didn’t exceed 50 until recently. High demand for homes is associated with record-low mortgage rates and changing priorities created by the pandemic.

While demand for homes usually slows in the colder months, the pandemic has caused families to re-evaluate their housing needs as more people work from home and children attend school online or are homeschooled. Larger homes cost more, which contributes to home sellers moving to suburban or rural areas to accommodate the additional expenses of buying and maintaining larger homes.

Regional Housing Market Conditions Mixed

The NAHB reported gains in builder confidence in three of four regions. The Midwest led with a nine-point increase in builder confidence. The South and West also showed rising builder confidence, but builders in the Northeast reported a five-point drop in builder confidence.

Robert Dietz, chief economist for the NAHB said, “In the short run, the shift of housing demand to lower density markets such as suburbs and exurbs along with ongoing low resale inventory levels is supporting demand for home building.”  Rising demand for homes as compared to low numbers of pre-owned homes available is creating additional demand for new homes.

Analysts said that the demand for new homes will last for quarters or years as it will take time for builders to catch up with the unusually high demand for single-family homes.

A seasonal slow-down in home sales coupled with a new and severe wave of COVID-19 cases may cause challenges for home builders in the coming months, but the current demand for homes could rise if city-dwellers continue to move to less congested areas. Recent positive news about COVID-19 vaccines could impact flight from cities to suburbs, but government approval, manufacture, and distribution of vaccines can’t happen immediately.

That said, now may be the right time to think about purchasing a home in WA, OR, CO, or ID, especially if you are interested in houses in less congested areas. Nevertheless, it is still highly recommended that you check with your real estate and mortgage professional for the most updated market details in your area and before you start the house hunting process.

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