Homebuilder Sentiment Tops Forecasts on Low Rates

Sentiment among U.S. homebuilders rose in February for a second month, exceeding all forecasts, as lower mortgage rates and a strong labor market help stabilize demand.

The National Association of Home Builders/Wells Fargo Housing Market Index rose to 62 from 58 amid broad improvement on gauges of sales, expectations and buyer traffic, data released Tuesday showed. The median estimate in Bloomberg’s survey had called for a rise to 59. Readings above 50 indicate more builders view conditions as good than poor.

Key Insights

• The pickup in sentiment, which fell to a three-year low of 56 in December, suggests buyers are taking note of mortgage costs falling to the lowest levels in almost a year as Federal Reserve policy makers pledge patience on further increases in the benchmark interest rate.
• The measures of expectations and traffic both advanced to the best since October, suggesting the improvement in demand may be poised to continue as rising wages help to offset some price gains.
• Existing home sales, with account for most transactions in the market, were little changed in January, according to estimates ahead of data due Thursday. The pace of sales had dipped to a three-year low the prior month despite rising inventory and slower price gains. Mortgage applications also fell in early February.
• While a tight labor market, wages rising at a faster pace, and tax cuts have helped keep the market and overall sentiment somewhat stable, the more upbeat mood among builders contrasts with dimmer views in consumer polls. The percentage of Americans who say now is a good time to buy a house fell in January to the lowest since 2008 before picking up this month, according to the University of Michigan’s sentiment survey.

Official’s View

“Ongoing reduction in mortgage rates in recent weeks coupled with continued strength in the job market are helping to fuel builder sentiment,” NAHB Chairman Randy Noel, a custom-home builder from Louisiana, said in a statement. “In the aftermath of the fall slowdown, many builders are reporting positive expectations for the spring selling season.”

More Data

• Two of four geographic regions improved. The Midwest gauge rose 6 points while the South’s climbed 5 points, both posting the largest gains since late 2017.
• The report is the second in a row to show gains for all three main index components.