Home builder confidence in single-family housing jumps to highest in 12 years

Business, Winter 2017

Home builder confidence in single-family housing jumps to highest in 12 years

March 15, 2017

By Hannah Levitt

Home builder confidence in single-family housing rose to the highest level since 2005, buoyed by increased confidence since the November presidential election.

The Housing Market Index rose to 71 in March, jumping 9.2 percent from 65 in February and higher than the Bloomberg consensus prediction of 66, according to the National Association of Home Builders and Wells Fargo. The March 2017 HMI is 22.4 percent higher than 58 in March 2016 and marks the highest HMI since June 2005.

Brandon Dobell, partner and head of global services at William Blair, said in an interview that the increase is due to higher consumer confidence and millennials’ coming to the housing market.

“It’s been a pretty steady pickup since the summer, even with rates up, which is a little strange,” Dobell said. “Usually you would think that with rates being up like they are, the housing market index, because of affordability concerns, wouldn’t be as strong as it is.”

According to the NAHB, the HMI gauges builder confidence in the single-family housing market. It ranges from 0 to 100 and is based on respondents’ ratings of present single-family sales, projected single-family sales in the next six months, and traffic of prospective buyers.

NAHB reported the index as 78 for both present single-family sales and single-family sales in the next six months. The traffic of prospective buyers component for March is 54. All three components increased from February.

The Midwest Regional HMI rose to 73 in March, up from 64 in February. It is higher than the Northeast Regional HMI of 53 and the South Regional HMI of 72. Only the West Regional HMI of 77 is higher than that of the Midwest.

HMI March 2017 — National and Midwest Regional Housing Market Index, March 2016-March 2017. The increase in the Midwest Regional HMI helped drive the jump in the National HMI in March. (Hannah Levitt/MEDILL)

Dobell pointed to increased confidence based on the election results to explain the increase in the Midwest specifically. The increase aligns with how the elections went in the Midwest states, which mostly voted for President Donald J. Trump.

“It’s not like you’ve seen a lot of new job creation in Detroit or Illinois or what have you in the last four or five months, it’s more confidence about that happening,” Dobell said.

NAHB Chief Economist Robert Dietz said in a press release that he expects some moderation in the index going forward.

“Builders continue to face a number of challenges, including rising material prices, higher mortgage rates, and shortages of lots and labor,” Dietz stated.

Photo at top: Houses and apartments along the Chicago River. Although President Donald J. Trump did not win Illinois, he overwhelmingly won the Midwest, contributing to home builders’ increased confidence, according to Brandon Dobell, partner and group head – global services at William Blair. (Hannah Levitt/MEDILL)