Following the remarkable election victory of Donald Trump, an interesting phenomenon emerged within the homebuilding sector. In November, while there was an upward trend among homebuilders, expectations for the housing market remained somewhat subdued.
Unraveling the Impact of Trump's Election on Homebuilders
November's Housing Market Index Uptick
The National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index witnessed a significant three-point rise in November, reaching 46. This marked an improvement from the previous month's 43 and signified the third consecutive monthly gain. According to Bloomberg data, November's reading was higher than the economists' estimates of 43. It's important to note that any reading below 50 indicates a perception of poor conditions rather than good ones among builders. As NAHB chairman Carl Harris, a custom home builder from Wichita, Kan., stated in a press statement, "With the elections now in the rearview mirror, builders are expressing increasing confidence that Republicans gaining all the levers of power in Washington will result in significant regulatory relief for the industry that will lead to the construction of more homes and apartments."This upward trend in the housing market index showcases the builders' evolving sentiment and their anticipation of positive changes in the regulatory environment. It provides a glimmer of hope for the future of the housing sector, indicating that builders are becoming more optimistic about the potential for increased construction activities.Impact of Mortgage Rate Rises
Meanwhile, mortgage rates continued their recent upward trajectory. Last week, the average rate on a 30-year fixed-rate loan remained at 6.78%, unchanged from the previous week's 6.79%. Rates on home loans tend to follow US Treasury yields, which have been on an upward swing since mid-September. This rise can be attributed, in part, to investors' expectations of a Trump victory and his proposed policies related to taxes and tariffs. In early September, the average rate on a 30-year fixed mortgage had fallen as low as 6.08%.As NAHB chief economist Robert Dietz pointed out, "While the stock market cheered the election result, the bond market has concerns, as indicated by a rise for long-term interest rates." This policy uncertainty in the executive branch poses challenges for both the business sector and the housing market. Builders need to navigate these uncertain times while keeping an eye on the evolving mortgage rate landscape.Concessions Offered by Builders
The NAHB survey revealed that builders continued to offer concessions in November. Sixty percent of builders used some sort of sales incentive to close the deal, which was slightly lower than the 62% who used incentives in October. Additionally, 31% of builders cut home prices to boost sales in November, remaining unchanged since July. The average price reduction was 5%, slightly lower than last month's 6%.This shows that builders are still employing various strategies to attract buyers and stimulate sales in a challenging market environment. While the rate of using sales incentives has slightly decreased, the fact that a significant portion of builders are still offering them indicates their continued efforts to make homes more affordable and attractive to potential buyers.Improvement in Sales Outlook
The gauge measuring the sales outlook over the next six months saw a substantial 7-point increase, reaching 64. The prospective-buyer traffic gauge also gained 3 points, and the NAHB index of current sales conditions rose 2 points in November. These positive indicators suggest that builders are optimistic about the future sales prospects and that there is an increasing flow of potential buyers in the market.This improvement in the sales outlook is a promising sign for the housing market. It indicates that builders are confident in the demand for homes and are likely to continue their construction activities. The rise in prospective-buyer traffic further supports this optimism, as it shows that there is a growing interest among potential buyers in the housing market.Overall, the post-election period has brought both opportunities and challenges for the homebuilding industry. While there is an upward trend in the housing market index and some positive indicators, the uncertainty surrounding policies and mortgage rates remains a significant factor that builders need to carefully consider. However, with the confidence expressed by NAHB leaders and the improving sales outlook, there is hope for a more vibrant housing market in the coming months.