As if in a blast from the past, the National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index (HMI) rose six points to 78 in August, the index’s highest reading since December 1998. The metric reflects builder confidence in the market for newly constructed single-family homes and has served as a boost for the economy this summer amidst a time of widespread uncertainty.

Despite strong confidence, a sharp increase in lumber prices as a result of the housing market’s V-shaped recovery over the course of the pandemic could potentially impact builder confidence in upcoming months.

Chuck Fowke | Photo credit: NAHB

“The demand for new single-family homes continues to be strong, as low interest rates and a focus on the importance of housing has stoked buyer traffic to all-time highs as measured on the HMI,” Chuck Fowke, NAHB chairman, said in a statement. “However, the V-shaped recovery for housing has produced a staggering increase for lumber prices, which have more than doubled since mid-April. Such cost increases could dampen momentum in the housing market this fall, despite historically low interest rates.”

Data for the NAHB/Wells Fargo HMI is gathered from a monthly survey in which builders rate current single-family home sales and future expected sales for the next six months as “good,” “fair” or “poor,” as well as traffic of prospective buyers as “high to very high,” “average” or “low to very low.” Scores help calculate a seasonally adjusted index where any number over 50 represents more builders considering conditions to be good rather than poor.

During August, all HMI indices saw gains. The HMI for current sales conditions rose six points to 84, the HMI measuring sales expectations in the next six months increased three points to 78 and the HMI gauging traffic of prospective buyers increased by eight points to reach a new all-time high of 65.

Regionally, the Northeast saw the greatest increase in three-month moving averages of HMI scores with a jump of 20 points to 65. The West increased 15 points to 78, the Midwest rose 13 points to 63 and the South rose 12 points to 71.

Builder confidence has fared so well over the past few months that the NAHB increased its forecast for single-family starts in 2020.

Robert Dietz | Photo credit: LinkedIn

“Housing has clearly been a bright spot during the pandemic and the sharp rebound in builder confidence over the summer has led NAHB to upgrade its forecast for single-family starts, which are now projected to show only a slight decline for 2020,” NAHB Chief Economist Robert Dietz said in a statement. “Single-family construction is benefiting from low interest rates and a noticeable suburban shift in housing demand to suburbs, exurbs and rural markets as renters and buyers seek out more affordable, lower density markets.”

Email Lillian Dickerson

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