The novel coronavirus has certainly taken its toll this year, but one area is getting some respite. This week, the National Association of Homebuilders announced that its housing market index reached 78 in August, a new high. The number reached a record high last seen in December 1998. In April, the index contracted to 30.
‘Housing has clearly been a bright spot during the pandemic, and the sharp rebound in builder confidence over the summer has led NAHB to upgrade its forecast for single-family starts, which are now projected to show only a slight decline for 2020,’ says NAHB chief economist Robert Dietz. ‘Single-family construction is benefiting from low interest rates and a noticeable suburban shift in housing demand to suburbs, exurbs, and rural markets as renters and buyers seek out more affordable, lower-density markets.’
The housing market index consists of three indices – current sales, sales expectations, and foot traffic. All three rose in August. Current sales hit 84, a gain of 6 points. Sales expectations grew 3 points to 78, and buyer traffic jumped 8 points to 65, a record high. Anything above 50 is considered positive.
Home buyers are being encouraged by favorable interest rates. Freddie Mac estimates that the average rate on a 30-year fixed mortgage is currently 2.96%, its lowest level in history. The Federal Reserve announced in June that interest rates would remain near zero through the end of 2022, at least.
One counterpoint in the housing bonanza could be lumber prices. The combination of increased demand and supply chain chaos is pushing up the price of raw materials. ‘The V-shaped recovery for housing has produced a staggering increase for lumber prices, which have more than doubled since mid-April. Such cost increases could dampen momentum in the housing market this fall, despite historically low interest rates,’ says NAHB Chair Chuck Fowke.