The latest National Association of NAHB/Wells Fargo Housing Market Index released in July brings with it good news: Home builder confidence has reached its highest level since November 2005.
The Index is a measure of home builder sentiment. It is based on a survey of builders who are asked to rate the market for the sale of new homes now and over the next six months. They also take into account the current foot traffic of potential buyers as they go on the hunt for a new home.
The index was 59 as of June – and anything above 50 is considered to be a sign that builders are feeling good about the market – specifically as it relates to new construction of single-family homes.
The gradually rising confidence is most likely the result of a number of factors including the increase in home sales, the still-low mortgage rates, and the overall improvement in the job market, which is giving home buyers the confidence to move forward with their purchases.
Lower interest and fewer lender restrictions have led to a buyer-friendly market. Add to that the numerous mortgage options available that don’t require a substantial down payment, and you have more people looking for homes right now than in recent years. And that’s good news for builders since their business depends on a healthy buyer’s market.
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Builder optimism is a good thing for the housing market in general, but whether or not it will translate into a boom in building remains to be seen. It would make sense that builders will be more willing to put up spec homes, but given the last few years, that’s a gamble that might seem too risky to some. Still, with home prices continuing to rise up, it could be a risk worth taking.
Negotiating with Confident Builders
Buyers seeking new construction homes could score free upgrades from builders if they act fast.
If builder confidence continues to rise, deals might start to evaporate. Builders will hold out for better offers.
In fact, builders are largely in control of new home pricing at this point, and aren’t keen about dropping their prices when prices overall are rising.
But if you time it right you can still get a good price on a new construction. A builder who builds multiple homes at once might cut a deal to get the first few under contract to finance the remaining homes. If you’re among the first few buyers within a major construction project, that could give you some leverage to negotiate.
If you’re in the market for a new construction home, the best approach is to work with a mortgage expert and/or real estate broker who can help guide you. You want to make sure you’re dealing with a builder who is reputable, and you want to be clear on timing, especially if your prospective home is in the early stages of being built.
Based on the continually increasing home builder confidence and the impending rise of interest rates, it could be beneficial to explore new construction options sooner rather than later.
