Homebuilder optimism makes record gain as buyers return

Homebuilder sentiment improved in June as record-low interest rates and demand for more space spurred buyers to re-emerge after the coronavirus shut down sales and construction.

A gauge of builder sentiment jumped to 58, a 21-point gain from May, according to the National Association of Home Builders/Wells Fargo Housing Market Index. Analysts expected a reading of about 46, the average of 37 estimates compiled by Bloomberg. A rating above 50 is considered positive. June's increase was the biggest on record for the index and followed a seven-point uptick in May.

"Builders report increasing demand for families seeking single-family homes in inner and outer suburbs that feature lower-density neighborhoods," NAHB Chief Economist Robert Dietz said in a statement. "At the same time, elevated unemployment and the risk of new, local virus outbreaks remain a risk to the housing market."

Other indicators show strengthening consumer confidence. U.S. retail sales jumped 17.7% in May, the biggest monthly gain on record, according to Commerce Department data released Tuesday.

Demand for new homes has bounced back despite the economic damage of the pandemic, sending an index of homebuilder stocks up 98% through Monday from this year’s March 23 nadir.

More than two-thirds of recent homebuyers cited COVID-19 as the reason for purchasing now, according to a survey released June 12 by John Burns Real Estate Consulting. The buyers listed low rates, dislike of their current home layout and desire for a larger house as their pandemic-related motivations, according to the poll of 5,000 buyers.

The previous record gain in the homebuilder-sentiment index was 10 points in March 1996, according to the NAHB. The gauge is still well below the recent high of 76 in December.

The highest reading by region was in the West at 66. Following were the South at 62, the Midwest at 51 and the Northeast at 48.