Prepare For High Buyer Competition This Spring
Home builders feel terrific about the future of U.S. housing.
With today’s mortgage rates ultra-low and U.S. rents rising, home builders are planning for another strong finish to the year for housing, and a fantastic start to 2017.
Market confidence among the nation’s builders is at decade-best levels.
As measured by the National Association of Home Builders’ Housing Market Index (HMI), home builder sentiment reads 63 out of 100, which is a “confident” figure.
Builders are calling for one of the strongest spring housing markets in a decade.
The combination of the still-low mortgage rates, the rising cost of rent, plus an abundance of loans for buyers with less than 20% down have changed today’s math of “Should I rent or should I buy?”.
Home builders plan to sell more than 650,000 new homes this year, and buyers could usher in even higher demand next year.
It could be a good ideal for home shoppers to buy this fall and winter, before the spring rush.
How The NAHB Housing Market Index Predicts Sales
Once monthly, the National Association of Home Builders (NAHB) surveys its members on current housing market conditions; and their outlook for the housing market’s future.
The results are compiled into the Housing Market Index.
Informally, the report is called the “home builder sentiment survey” and it reflects home builder attitudes about the nation’s single-family, new construction housing market.
The index is one of the most anticipated reports published each month, because it provides clues to housing market health six-to-twelve months in advance.
Home builders gather real-time, “on the ground” data as they observe buyer foot traffic and actual sales in their day-to-day business. They recognize real estate trends long before economists do.
For instance, a home builder sees rising interest in its homes. Potential buyers visit model homes and sign contracts to buy.
In response, the builder obtains new building permits and breaks ground on developments. Conversely, it will hold off on projects if foot traffic wanes.
Without the Housing Market Index, economists may only have access to data for planned or started homes. But that data is a lagging indicator of what happened in the market months prior.
This forward-looking report is important to economists, but can be valuable to the everyday home buyer, too.
Many buyers today feel they have “missed out” on future home appreciation, now that house values have risen steadily since 2012. They feel demand for homes will drop and, in turn, prices will cool off.
Home builders would beg to differ.
Today, builder sentiment reads a healthy 63, just two points down from September’s 2016-best rating of 65.
The report signals continued strength in the housing market.
In the NAHB Housing Market Index, 50 is the inflection point in the index between “good” conditions and “poor” ones; and November’s reading marks the twenty-ninth straight month in which the HMI has logged north of 50.
Buoyed by low mortgage rates and big demand from buyers, home builders believe today’s housing market is solidly in positive territory.
Home buyers who have been on the sidelines should consider buying before the rush of spring 2017. November’s HMI indicates the market will be strong next year and perhaps beyond.
Spring 2017: Strongest Market In 11 Years?
The NAHB Housing Market Index is a composite survey. Its results are based on three distinct questions posed to home builder trade group members.
Each question polls a separate facet of a home builder’s business.
The monthly readings, as reported by the home builder trade group are:
- Current home sales activity : Reading of 69 (unchanged from one month ago)
- Home sales activity for the next six months : Reading of 69 (-2 from one month ago)
- Buyer foot traffic : Reading of 47 (+1 from one month ago)
The housing market is strong on all fronts. Especially telling is the future sales component of the index.
This figure estimates sales strength in six months’ time, or roughly April-May of 2017.
A reading of 69 matches the reading for one year ago. The spring of 2016 turned out to be a stellar one for the housing market. Builders are expecting a similar or better market in the first half of 2017.
The November 2016 HMI is also one of the highest readings in the past 11 years. The index has only surpassed November’s level five times in the past 11 years.
2017 could be the strongest spring home buying season in more than a decade.
Builders are calling for fast home sales (meaning higher prices) next year. Home buyers should consider the effect of higher prices — and potential mortgage rate increases — on their plans. They can be on the winning side of rising values.
Buyers may not know specifically what a mortgage is, they do know that their rents are rising and that buying a home could be better than renting into 2017.
So long as the math buying over renting, builders will continue to have optimism for the future of U.S. housing.
Optimism Rises In Northeast; West Continues To Lead
As with everything in real estate, location matters.
Home buyer demand is strong across the U.S., but historically, the Northeast has fared worse than other regions.
Over the past 12 months, this region has averaged 44 on a one-through-one-hundred scale. Nationally, the “score” is currently 63, and a rating of 50 is deemed a “good” housing market.
The region is under performing.
Yet, it could be turning a corner. November’s reading was 47, an eleven-point increase from its 2016 low in May. Home builders are gaining confidence, even in one of the nation’s toughest regions.
Other areas are holding well above the benchmark optimistic score.
- Northeast: HMI reading of 47 (+1 from one month ago)
- Midwest: HMI reading of 59 (unchanged from one month ago)
- South: HMI reading of 65 (+1 from one month ago)
- West: HMI reading of 76 (+2 from one month ago)
If sales are as strong as builders predict, home buyers could face challenges. Bidding wars and above-list-price offers could be the rule, not the exception.
And free home upgrades will be all but off the table.
Still, purchasing a new home could be worth the effort. Homes that are newly built often come with warranties that protect the homeowner against expensive defects. New homes occasionally need repairs, just like older ones, and it’s rarely a “bad” idea to receive a warranty if one is offered.
Home buyers in western states can still find value in new homes, despite high competition. As rents rise, buyers are locking in housing costs by purchasing new and used homes in every region of the country.
What Are Today’s Mortgage Rates?
To today’s buyers, new construction homes can be appealing. New homes are often built with the latest amenities and technologies and, because of low interest rates, they’re often affordable, too.
Get today’s live mortgage rates now. Your social security number is not required to get started, and all quotes come with access to your live mortgage credit scores.