The National Association of Home Builders’ (NAHB) monthly confidence index increased five points to 76 in December from an upwardly-revised 71 the previous month, the trade group said Monday. December’s figure represents the highest index reading since June 1999.
This story by Jacob Passy originally appeared in MarketWatch.
Index readings above 50 are a sign that confidence is improving, while a figure below that threshold would signal that builders have mounting worries.
Home builders have grown steadily more confident throughout 2019 – this time a year ago, the confidence index was at 56.
The indicator of expectations for future sales over the next six months increased one point to 79. The gauge of current single-family home sales jumped seven points to 84, while the index that measures sentiment regarding prospective buyer traffic ticked up four points to 58.
Regionally, home-builder sentiment improved on a monthly basis across the South (up one point), Midwest (up five points) and West (up three points) but worsened slightly in the Northeast by two points.
The NAHB’s index functions as an indicator of potential future home-building activity. Housing starts data has improved in recent months, and that trend could continue into the new year. Several factors are driving the improvements in confidence. Low mortgage rates should continue to stimulate appetite among home buyers, which should help keep sales volume positive in 2020. Meanwhile, the low supply of existing homes for sale provides an avenue for home builders’ products.
Increase home-building activity would be a positive for the U.S. economy, because many would-be home buyers are struggling to find homes in their price range. However, the higher cost of land and labor has meant that builders are still focusing quite a bit on the higher end of the housing market in terms of price, while what’s most needed in the market is more entry-level homes.