Home builder confidence points to better affordability ahead

U.S. home builders are reporting their highest level of confidence in the real estate market since 2005.

U.S. home builders are reporting their highest level of confidence in the real estate market since 2005.

 

With the Dec. 14 announcement from the Federal Reserve that the central bank's key interest rate would be increased for the first time in a year, it's clear that the prevailing sentiment surrounding the American economy is positive. Unsurprisingly, these good feelings extend across the real estate landscape, too, which should make 2017 another good year for homeowners, buyers and builders.

"Even with the rate increases we expect to see next year, housing affordability is better than it's been in years, when adjusted for consumer house-buying power," First American Chief Economist Mark Fleming wrote in an analysis of the Fed's latest policy decree and subsequent projections. 

As Fleming explained, a Fed rate hike brings with it higher borrowing costs on home loans, as well as somewhat softer home value appreciation rates. But even with these factors at play, Fleming found that homebuyers' purchasing power was still favorable thanks to higher wages, better credit availability and a generally strong economy.

Home builders react

Perhaps in recognition of this, U.S. home builders are reporting the highest level of confidence in the real estate market since 2005, according to the latest survey from the National Association of Home Builders. This is after the confidence index jumped seven points from a modest 63, the last reading before the U.S. presidential election. 

HomesA consistently strong housing market has given U.S. home builders renewed optimism as they head into 2017.

This indicates home builders are hopeful that a new administration, inheriting an already strong economy, will be able to improve and address lingering weaknesses. More than likely, builders also were factoring in the Fed's decision, which was widely predicted in the months leading up to the official announcement.

"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," NAHB Chief Economist Robert Dietz said in a statement. "The rise in the HMI is consistent with recent gains for the stock market and consumer confidence. At the same time, builders remain sensitive to rising mortgage rates and continue to deal with shortages of lots and labor."

Still, real estate professionals will no doubt remember going into 2016 on the heels of a relatively hot market. While 2016 may not have lived up to every expectation, this data shows the next year is unlikely to disappoint either.