Housing News

Homebuilders Still Feeling Good as Demand for New Houses Remains Elevated

When we last heard from homebuilders, they were feeling better about the housing market than they ever had before. In November, a report from the National Association of Home Builders (NAHB) showed that builder confidence, a measure of how homebuilders feel about the market, was at an all-time high that month.

One month later, homebuilders are still feeling very good about the market, albeit not quite as good as they were last month.

A new report from the NAHB showed that builder confidence in the market for new single-family homes fell from November's high of 90 to 86 in December. The slight decline comes after three straight months of record highs in builder confidence.

However, it should be noted that December's total of 86 is still the second-highest reading in the 35-year history of the builder survey, indicating that homebuilders are still feeling tremendous about the market.

As for why builders are still feeling this good, a separate report from the Mortgage Bankers Association shows that demand for new homes is elevated well beyond where it was last year.

According to the report from the MBA, mortgage applications for new home purchases in November were up nearly 35% over the same month last year, showing that quite a few more people are trying to buy a new home this year than they were last year.

Despite the year-over-year increase, the MBA report shows that November's new home mortgage applications were down 16% from October, although it should be noted that October was a record high in that survey as well.

"November new home sales activity, both mortgage applications and home sales, ran at a pace considerably ahead of 2019, showing the ongoing strong growth in housing demand and new residential construction," said Joel Kan, MBA's Associate Vice President of Economic and Industry Forecasting.

"However, MBA estimates that after climbing to a new survey high in October, the seasonally adjusted pace of new home sales declined in November," Kan added. "Signs of a slowdown in the economic recovery likely contributed to the expected monthly decrease in activity."

NAHB Chief Economist Robert Dietz also cited the uneven economic recovery as a reason for why builder confidence fell slightly.

"Builder confidence fell back from historic levels in December, as housing remains a bright spot for a recovering economy," Dietz said.

"The issues that have limited housing supply in recent years, including land and material availability and a persistent skilled labor shortage, will continue to place upward pressure on construction costs," Dietz continued. "As the economy improves with the deployment of a COVID-19 vaccine, interest rates will increase in 2021, further challenging housing affordability in the face of strong demand for single-family homes."