The National Association of Home Builders has released their report for the month of march, and their gauge of builder sentiment has risen to 71. This is the highest rating we have seen since June of 2005, and several other key indicators suggest that it could be a promising year for home builders. These indicators suggest that not only are home builders optimistic, but that market experts forecast improvements in the home market. Here are a few things that you should know about the jump in U.S. Homebuilder Confidence, what is causing it to rise to highest levels in 12 years, and what you can expect in the coming year.
- This jump is probably mostly caused by a changing political climate. Some experts cite that 25% of the cost of a modern home is spent in ensuring that it conforms to regulations. Donald Trump has vowed to slash regulation, meaning that homes could be built using cheaper or less environmentally friendly materials. This would mean that homes could cost substantially less to build, while the demand would not be expected to drop. Home builders expect to use this saving to be able to better afford many new and potentially lucrative projects.
- This regulatory optimism can overcome the typically negative effect of rising interest rates. While moderately higher interest rates might normally lead to a slow down, they may not be high enough to quench the optimistic sentiments of home builders (yet).
- Trump’s early days in office have shown that he appears to fully intent to fulfill his promises to cut away many of the regulations currently on the market but who knows? After his election, many waited and watched to see if he would follow through with the promises that they feel will benefit their market. In late February, when he issued a directive to roll back an Obama era regulation on water pollution, many took this as a sign that more regulation, particularly regulation intended to be environmentally conscious, would soon follow.
It is impossible to predict how the market will be affected in the long term, but it looks like we might be approaching a good time for home builders. Experts caution, however, that while things look good, there will still be economic constraints and struggles for the industry to overcome. I never have an opinion on when the perfect moment is to buy a home. Over the past 50 years, owning real estate has been a great investment. If you are looking to purchase a home, always pay attention to the market, do your homework, and make the best possible decision with the information available to you.