With U.S. stocks rallying to fresh all-time highs on the back of news of a trade deal, the National Association of Home Builders’ monthly confidence index showed a five point increase to 76 in December from an upwardly-revised 71 the month prior, the trade group said Monday. December’s number demonstrates the highest index reading since June 1999.
Index readings above 50 are a sign that confidence is increasing, while a figure below 50 would imply that builders have growing concerns over the economy.
November’s reading was also revised higher by 1 point. The index pegged 56 last December. To show the contrast, during the worst part of the housing crash, in 2009, builder sentiment hit a low of just 8.
“Builders are continuing to see the housing rebound that began in the spring, supported by a low supply of existing homes, low mortgage rates and a strong labor market,” said NAHB Chairman Greg Ugalde, a home builder and developer from Torrington, Conn.
Builders’ confidence is definitely affected by what they’re seeing in their showrooms. Of the index’s three components, current sales conditions climbed 7 points to 84, sales expectations in the next six months rallied 1 point to 79 and buyer traffic increased 4 points to 58.
Despite the encouraging index’s number, builders could probably be doing even better if they didn’t face so many economic challenges.
“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,” said NAHB chief economist Robert Dietz. “Higher development costs are hurting affordability and dampening more robust construction growth.”
For the general homebuilder market however, there is even more reason to be optimistic.
“Last year, homebuilders underperformed the broad market by nearly 30% as rising interest rates dampened the demand of homebuyers,” said State Street in a recent note. “However, headwinds are turning into tailwinds this year. Falling 30-year mortgage rates and the Federal Reserve’s dovish monetary stance have boosted housing activity and homebuilder sentiment and lifted homebuilder stocks.”
For investors interested in using ETFs to participate in the home-builder market, the SPDR S&P Homebuilders ETF (NYSEArca: XHB), which is up 40.56% year-to-date, is among 2019’s best-performing non-leveraged ETFs.
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