According to the latest National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index released May 18, builders’ sentiment gained seven points in May, rising to 37 points. This comes following a discouraging dip in April amid COVID-19, where sentiment plummeted to 30, reports Forbes.
Any reading of the index below 50 indicates poor expectations.
The deflated confidence in April marked the largest single-month change in the 35-year history of the index and the first negative reading since June 2014. In March, builder sentiment stood at 72 points, when low interest rates and tight inventory still fended off some of the emerging adverse effects of the coronavirus.
“The fact that most states classified housing as an essential business during this crisis helped to keep many residential construction workers on the job, and this is reflected in our latest builder survey,” says NAHB Chairman Dean Mon.
However, the Bureau of Labor Statistics has reported nearly 618,000 layoffs in March, which marked a nearly 250 percent increase from a year ago. While less workers may be working on home construction sites, earlier this spring, some projects halted operations altogether, reducing competition among builders for skilled laborers such as carpenters and plumbers.
“The trades aren't quite as busy as they were,” says Lesley Deutch, principal with John Burns Real Estate Consulting. “[Builders] are able to manage the costs a little bit better. Before when you had one trade working eight different jobs, sometimes it would be paid more to get a job done on one builder’s site versus the other.”
But that dynamic is starting to shift, says Deutch, as some housing markets are starting to chart a healthy rebound.
According to a survey by Meyers Research, 5 percent of builders increased their staff in the week of May 11, while 65 percent have not changed their employee rosters. Some 19 percent, however, laid off workers. Explaining the numbers on a webinar last week, Meyers Research’s Chief Economist Ali Wolf said that a number of home builders underwent furloughs early on in the coronavirus pandemic and are now calling workers back as demand is starting to pick up.
NAHB Chief Economist Robert Dietz says that low interest rates have helped sustain the demand for new homes.
“As many states and localities across the nation lift stay-at-home orders and more furloughed workers return to their jobs, we expect this demand will strengthen,” he says. “Other indicators that suggest a housing rebound include mortgage application data that has posted four weeks of gains and signs that buyer traffic has improved in housing markets in recent weeks.”
This month, NAHB’s measure that keeps track of prospective buyers’ traffic rose eight points to 21. Amid the pandemic, the type of residences new home shoppers are looking for is also shifting. These findings align with the rest of the NAHB’s housing indices, which are now showing a six-point improvement in builders’ perceptions of sales conditions (42 points) as well as sales expectations (46 points).