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Homebuilder optimism slips slightly to start 2020 but is still high

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A contractor uses a hammer while working on townhouse under construction at the PulteGroup Metro housing development in Milpitas, California, Oct. 25, 2018.

David Paul Morris | Bloomberg | Getty Images

The nation’s single-family homebuilders are feeling very confident about their business in the new year, as high demand and low supply make for a profitable mix.

Yet, sentiment in January did slip 1 point on the National Association of Home Builders/ Wells Fargo Housing Market Index to 75, but that is considerably higher than last January, when it was 58. Last month’s reading was a 20-year high. Anything above 50 is considered positive.

Low interest rates are making homebuying more affordable, despite the price premium for new construction. Builders are also starting to pivot more to entry-level homes, after a decade of building mostly move-up product. Prices are still rising for new and existing homes, so there may be some friction ahead if affordability worsens.

“With the Federal Reserve on pause and [with] attractive mortgage rates, the steady rise in single-family construction that began last spring will continue into 2020,” said NAHB chief economist Robert Dietz. “However, builders continue to grapple with a shortage of lots and labor while buyers are frustrated by a lack of inventory, particularly among starter homes.”

Of the HMI’s three components, buyer traffic increased 1 point to 58, the highest level since December 2017. Current sales conditions, however, fell 3 points to 81 and sales expectations in the next six months was unchanged at 79.

Regionally, on a three-month moving average, builder confidence in the Northeast rose 1 point to 62, increased 3 points in the Midwest to 66 and in the West it moved 1 point higher to 84. Sentiment in the South was unchanged at 76.

Source: Real Estate