Builder Sentiment Has Never Risen by This Much in a Month

June 17, 2020

Few thought the housing market would see this quick a turnaround in homebuyer demand. The COVID-19 pandemic dragged down the spring buying season as states and cities issued stay-at-home orders. But despite the lingering pandemic and subsequent economic recession, homebuilders are upbeat on housing heading into summer.

Builder sentiment surged 21 points in June, the largest monthly increase ever recorded by the National Association of Home Builders/Wells Fargo Housing Market Index. The reading in June is 58. Any reading above 50 indicates a positive market. In April, as the COVID-19 outbreak settled into the U.S., the builder sentiment index plunged by 42 points, a record drop, to a reading of 30.

A lot has changed since then. Builders are most bullish on current sales conditions, sales expectations in the next six months, and rising buyer traffic.

“As the nation reopens, housing is well-positioned to lead the economy forward,” says Dean Mon, chairman of the National Association of Home Builders. “Inventory is tight, mortgage applications are increasing, interest rates are low and confidence is rising.”

Mortgage applications to purchase a newly built home rose 10.9% annually in May, according to the Mortgage Bankers Association.

This is elevating home builders’ initial concerns that the pandemic would wreak havoc on sales. As the outbreak began in mid-March, some of the nation’s largest builders stopped housing starts and halted purchasing land due to concerns how the sector would fare in the pandemic.

“Builders report increasing demand for families seeking single-family homes in inner and outer suburbs that feature lower density neighborhoods,” says Robert Dietz, the NAHB’s chief economist. “At the same time, elevated unemployment and the risk of new, local virus outbreaks remain a risk to the housing market.”

The builder sentiment index showed the highest monthly uptick in the Northeast, with readings increasing by 31 points to 48. Other regions also posted increases, including the South, which rose by 20 points to 62; the Midwest posted a 19 point gain, to 51; and the West increased by 22 points to 66.