U.S. homebuilders’ confidence soared this month to the highest level in 11 years, reflecting heightened expectations of better sales now and well into 2017.
The National Association of Home Builders/Wells Fargo builder sentiment index released Thursday jumped seven points to 70. The last time the reading was at this level was July 2005, during the high-flying days of the last U.S. housing boom.
Readings above 50 indicate more builders view sales conditions as good rather than poor. The index has been above 60 the past four months after hovering in the high 50s much of this year.
Builders’ view of sales now and over the next six months rose sharply, as did a gauge of traffic by prospective buyers.
The sharp increase in the latest builder survey is consistent with recent gains for the stock market and improving U.S. consumer confidence, said Robert Dietz, the NAHB’s chief economist.
“Though this significant increase in builder confidence could be considered an outlier, the fact remains that the economic fundamentals continue to look good for housing,” Dietz said. “At the same time, builders remain sensitive to rising mortgage rates and continue to deal with shortages of lots and labour.”
A stable job market and low mortgage rates have helped spur demand for new homes this year. Sales of new U.S. homes hit a seasonally adjusted annual rate of 563,000 units in October. Sales data for November are due out next week.
Through the first 10 months of this year, sales of new homes are 12.7 per cent higher than in the same stretch last year. The strong demand has helped lift prices, pushing the median sales price of new U.S. homes to $304,500 as of October.
This month’s builder index was based on 318 respondents.
A measure of current sales conditions for single-family homes jumped seven points to 76, while a gauge of traffic by prospective buyers climbed six points to 53. Builders’ view of sales over the next six months rose nine points to 78.
Despite builders’ bullish sales outlook, the recent steady rise in mortgage rates could make homes less affordable for some would-be homebuyers, possibly dampening sales.
Long-term mortgage rates have risen steadily in the weeks since Donald Trump’s victory in November to become the country’s next president.
Mortgage giant Freddie Mac said Thursday the average rate on a 30-year fixed rate loan jumped this week to 4.16 per cent from 4.13 per cent the previous week. The benchmark rate surpassed its 3.97 per cent level of a year ago.
Investors expect the budget deficit to increase under Trump, prompting the interest rate increase.
The possibility of a continued uptick in mortgage rates is one reason why the National Association of Realtors expects U.S. home sales to rise only modestly next year.