Confidence among homebuilders reached an all-time high in November as buyers looking for more room to live and work continued to enter the market, according to the National Association of Homebuilders Housing Market Index released on Wednesday.
The index, which rose to 90, is a composite measurement of future sales, present sales and buyer traffic — all of which increased this month, led by present sales at a staggering 96. In April, during the depths of the economic shutdown, the overall index stood at 30. A reading above 50 is considered positive.
This surging confidence is resulting in a market for new homes that is experiencing a phenomenal V-shaped recovery. Housing starts reached 1.53 million in November, up from nearly 1.42 million in October, according to U.S. Census data. That pushes development above the projected balance of 1.5 million necessary to maintain a long-term equilibrium in the market. Building permits, a forward-looking metric, took a small dip to nearly 1.55 million in November, down from 1.55 million in October, according to census data.
Behind the surging market are historically low interest rates combined with growing demand as millennials, once delayed in home ownership, enter the market. At the same time, city dwellers, unshackled from the office because of work-from-home orders, are looking for more room so they can work at home and their children can attend school remotely.
There is also a supply squeeze. Baby boomers, the largest generation of existing homeowners, are staying in their homes longer, wary of moving to more densely populated cities that have been hot spots for COVID-19.
The takeaway
This spike in demand and reduction in existing home capacity, combined with the favorable financing environment, is a recipe for homebuilders to have a long and profitable runway for the foreseeable future.
For more information on how the coronavirus is affecting midsize businesses, please visit the RSM Coronavirus Resource Center.
