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.