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May 18, 2020, 3:42 p.m. EDT

Home-builder confidence rebounds in May from historic decline as industry grows optimistic about post-pandemic home sales

Construction firms are now relatively less pessimistic on the housing industry’s prospects thanks to low interest rates, even though coronavirus-related challenges remain

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By Jacob Passy


Bloomberg News/Landov
Home builders are more optimistic about the trajectory of the housing industry following last month’s record decline.

The numbers: Confidence among home builders has recovered somewhat after last month’s record-breaking decline even as much of the country remains under stay-at-home orders because of the coronavirus pandemic.

The National Association of Home Builders’ monthly confidence index rose seven points to a reading of 37 in May, the trade group said Monday. April’s figure had represented the lowest index reading since June 2012.

“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,” Dean Mon, the association’s Chairman and a home builder from Shrewsbury, N.J., said in the report.

Index readings above 50 indicate improving confidence, while a figure below that threshold would signal the opposite. Last month was the first time since 2014 that the index has dropped below 50.

What happened: All of the main index’s underlying components rose in May.

The indicator that measures current sales conditions increased six points to 42, while the component that gauges sales expectations in the next six months jumped 10 points to 46. The index that follows traffic of prospective buyers rose eight points to 21.

Regionally, the West posted the largest gain, increasing 12 points, followed by the Midwest and the South. Builder confidence in the Northeast — where New York state has been particularly hard hit by the coronavirus — dropped two points.

The big picture: While the coronavirus took a big bite out of the spring home-buying season, the real-estate industry appears poised to recover from the pandemic.

Mortgage applications for loans used to finance the purchase of a home have increased in recent weeks, according to data from the Mortgage Bankers Association. Home-search activity has also recovered, with listing views for single family homes and condos up 30 percent, per Realtor.com.

“Data suggests that home shoppers who had paused their search are now picking it back up, and the spring homebuying season won’t be lost, but merely pushed into the summer months,” said Danielle Hale, chief economist at Realtor.com.

(Realtor.com is operated by News Corp /zigman2/quotes/201755982/composite NWSA +3.52%   subsidiary Move Inc., and MarketWatch is a unit of Dow Jones, which is also a unit of News Corp.)

Historically low interest rates are stoking demand among prospective home-buyers, experts say. Additionally, while a record number of Americans are still unemployed because of the coronavirus pandemic, job losses are largely occurring in the service sector. And many of these workers, who tend to skew younger, were unlikely to be in the market to buy a home before the pandemic began, according to research from First American Financial /zigman2/quotes/210452372/composite FAF +1.04%  , a title insurance company.

Nevertheless, challenges remain for the construction industry, including the availability of loans for home builders and building materials.

What they’re saying: “We are very constructive on housing, and see it as the most likely sector to experience a v-shaped recovery,” Jeffries chief economist Aneta Markowska and money market economist Thomas Simons wrote in a research note.

Market reaction: D.R. Horton Inc. /zigman2/quotes/202032328/composite DHI +1.94%   Lennar Corp. /zigman2/quotes/202536373/composite LEN +1.72%   and Pulte /zigman2/quotes/201694804/composite PHM +2.03%   were all up in morning trading after the data release.

The Dow Jones Industrial Average /zigman2/quotes/210598065/realtime DJIA +1.30%   and the S&P 500 /zigman2/quotes/210599714/realtime SPX +0.27%   were also up in Monday morning trading.

This story has been updated.

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Volume: 4.60M
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/zigman2/quotes/202032328/composite
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$ 69.53
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Volume: 0.00
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P/E Ratio
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Market Cap
$24.87 billion
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/zigman2/quotes/202536373/composite
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$ 74.50
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$1.77M
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/zigman2/quotes/201694804/composite
US : U.S.: NYSE
$ 45.16
+0.90 +2.03%
Volume: 3.43M
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P/E Ratio
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1.06%
Market Cap
$11.87 billion
Rev. per Employee
$1.98M
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/zigman2/quotes/210598065/realtime
US : Dow Jones Global
27,791.44
+357.96 +1.30%
Volume: 362.50M
Aug. 10, 2020 5:12p
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/zigman2/quotes/210599714/realtime
US : S&P US
3,360.47
+9.19 +0.27%
Volume: 2.57B
Aug. 10, 2020 5:12p
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Jacob Passy is a personal-finance reporter for MarketWatch and is based in New York.

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