Homebuilders’ rather bleak sentiment about the state of their industry last month seems to be now slowly reverting as states lift stay-at-home orders and home shoppers return to the market.
According to the latest National Association of Home Builders/Wells Fargo Housing Market Index, released on Monday, builders’ sentiment gained seven points in May, rising to 37 points. Any reading of the index below 50 indicates poor expectations.
“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,” said NAHB Chairman Dean Mon.
While the lag in data releases means we won’t know the current employment rate in the construction sector for at least two more months, the Bureau of Labor Statistics reported nearly 618,000 layoffs in March. The figure marked a nearly 250% increase from a year ago.
While less workers might currently hustle 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% of builders increased their staff in the week of May 11, while 65% have not changed their employee rosters. Some 19%, 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 said 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 said. “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. According to Meyers, detached homes are posting a 13% faster pace of sales in May compared to March and April. At the same time, 19% of the surveyed builders are increasing home prices.
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).
Regionally, sentiments fell only in the Northeast, while they experienced the highest increase – 12 points – in the West.