Unexpectedly Intriguing!
December 17, 2019

Things are looking up for new home builders in the U.S. at the end of 2019, marking a strong contrast with how 2018 ended.

Home builders are closing out 2019 more optimistic than they’ve been in decades.

The National Association of Home Builders’ monthly confidence index increased five points to 76 in December from an upwardly-revised 71 the month prior, the trade group said Monday. December’s figure represents the highest index reading since June 1999.

At this point, we only have sales data through October 2019, but the trend for new home sales is clear, with the effective market cap of the U.S. new home market near the highest it has been in over a decade:

Trailing Twelve Month Average New Home Sales Market Capitalization, Not Adjusted for Inflation and Adjusted for Inflation, January 1976 - October 2019

The National Association of Home Builders identifies several factors behind their improved outlook:

Several factors are driving the improvements in confidence. Low mortgage rates should continue to stimulate appetite among home buyers, which should help keep sales volume positive in 2020. Meanwhile, the low supply of existing homes for sale provides an avenue for home builders’ products.

One factor they haven't mentioned is that new home sale prices have been falling since 2018, while household incomes have been rising, making new homes more affordable for the typical American household than they've been in years.

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