Homebuilder sentiment soars to a 20-year high

U.S. homebuilder sentiment advanced in December to the highest level since 1999 amid stronger sales and a surge in prospective buyer foot traffic.

The National Association of Home Builders/Wells Fargo Housing Market Index jumped 5 points to 76, the biggest monthly increase since the end of 2017, and the November figure was revised higher, according to data released on Dec. 16. The reading topped all estimates in a Bloomberg survey of economists that had called for 70.

The readings add to other brighter assessments of the economy. A Federal Reserve Bank of New York survey showed manufacturers in the state are growing more upbeat, with the gauge of the orders outlook rising to the strongest since February. Elsewhere, two surveys of U.S. factories and service companies suggested economic growth is holding up at a modest pace.

Photographer: Chona Kasinger/Blo

The December reading caps a 20-point gain for the index this year, the biggest since 2012, and bodes well for future construction as well as affordability. While housing starts have improved in recent months, the pace of construction still remains significantly below levels seen in the early 2000s. The lack of inventory, along with low mortgage rates, have driven up prices and limited growth in the home ownership rate among Americans.

The NAHB's gauge of the traffic of prospective buyers climbed 4 points to 58, matching the highest level since 1998; the index of current sales surged by 7 points to 84, the best reading since 1999.

The latest data could signal a further strengthening in housing permits, which hit their fastest pace since 2007 in October. New-home sales recently posted their two best months in more than 12 years.

Readings above 50 indicate more builders view conditions as good than poor.

"While we are seeing near-term positive market conditions with a 50-year low for the unemployment rate and increased wage growth, we are still underbuilding due to supply-side constraints like labor and land availability," Robert Dietz, NAHB's chief economist, said in a statement. "Higher development costs are hurting affordability."

The NAHB's measure of sales prospects rose 1 point to 79, the strongest since February 2018.

Sentiment differed regionally. The gauge of builder sentiment in the South, the largest region, climbed to the highest level since June 2005 as the Midwest's measure surged 15 points to a two-year high. Sentiment indexes in the Northeast and West declined.