Economy Watch: The Homebuilders’ State of Mind

By Dees Stribling, Contributing Editor

Another part of the real estate industry that wasn’t fazed by the temporarily wobbly economy of the late summer was the homebuilding trade. According to the latest Home Builders/Wells Fargo Housing Market Index, which was released on Monday by the National Association of Homebuilders, builder confidence in the market for newly constructed single-family homes rose three points in October to 64. Anything over 50 is optimism, but a number that high is more than simple optimism. Confidence in the industry hasn’t been that high since the housing bubble of the mid-2000s. Late 2005, in fact.

Even better, this time there are no indications of another housing bubble. The latest Census Bureau numbers put new home sales at an annualized rate of 522,000 units as of August. That’s a considerable improvement over the same month in 2014 — up 21.6 percent, and a trend that might help account for some of the homebuilding industry’s optimism. But the total isn’t nearly as much as during the bubble, or for that matter as much as during the periodic non-recession growth periods of from the 1960s to the 1990s, when homebuilding sometimes exceeded 1 million units a year.

Two of the three NHBA index components posted gains in October. In a large movement showing a good deal of optimistic sentiment, the index measuring sales expectations in the next six months rose seven points to 75. The component tracking current sales conditions did all right as well, increasing three points to 70. And the index charting buyer traffic held steady at 47. With October’s three-point uptick, builder confidence has been holding steady or increasing for five straight months. The upward momentum shows that the industry is strengthening at a gradual but consistent pace, according to NAHB chief economist David Crowe.

In parallel with the rise in homebuilder confidence, consumer confidence also seems to have shaken off the late summer jitters as well. (And happy consumers are good for real estate, both residential and commercial, in the longer run.) The preliminary University of Michigan consumer sentiment index for October, which was released late last week, came in at 92.1, up from 87.2 in September. Another chief economist, Richard Curtin of the university’s Surveys of Consumers, posited that the rebound in confidence means that “consumers have concluded that the fears expressed on Wall Street did not extend to Main Street.”