By Eric Morath
WASHINGTON -- Home builders' sentiment surged this month to a level not seen since before last decade's housing crisis, a sign of the industry's confidence in President-elect Donald Trump.
The National Association of Home Builders, a trade group, said Thursday that its housing-market index rose to 70 in December, from a reading of 63 the prior month. This month's reading was the highest level since July 2005 and well above 50, the point at which more builders view conditions as good than poor.
The latest reading doesn't suggest home building will surge back to precrisis levels, when construction started on about 80% more homes than the pace recorded in recent months. But the data does indicate builders expect a Trump administration tolend more support to the industry, through reduced regulation and taxes.
"It's a sign that builders believe they will have a friend in the Oval Office," said Ralph McLaughlin, economist at real estate site Trulia. "Whether that's a rational response is a different question." Most regulatory roadblocks builders face are at the local level, he said.
Builders' confidence in current market conditions and expectations for the next six months both significantly improved, according to the survey. The component measuring traffic of prospective buyers moved into positive territory for the first time in more than a decade.
Builders are hopeful that President-elect Donald Trump "will follow through on his pledge to cut burdensome regulations that are harming small businesses and housing affordability," said Ed Brady, chairman of the home builder trade group, and a builder and developer from Bloomington, Ill.
Movement in the builder-sentiment figure doesn't always translate into near-term changes in measures of home construction or purchases of new properties. The confidence reading moved back into prerecession territory last year and the rate of building remains well depressed from the prior peak.
December's increase was unusually large, matching the biggest one-month gain since 2002.
"This significant increase in builder confidence could be considered an outlier," said Robert Dietz, the home builder trade group's chief economist. But the rise "is consistent with recent gains for the stock market and consumer confidence."
Low unemployment and rising wages helped create stronger demand for housing. Purchases of existing homes touched a post-recession high in October and prices are rising. That should provide home builders with many customers heading into next year.
However, some expected Trump administration policies might not be advantageous for builders. For example, Mr. Dietz said builders continue to struggle with labor shortages. Changes to immigration policies could limit access to workers.
"Builders are rallying on Trump's promise to lower regulations," said Nela Richardson, chief economist for real estate site Redfin. But "with nearly 1 in 4 construction workers from other countries and labor shortages a significant headwind, closed-door immigration policies could bulldoze builder confidence."
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(END) Dow Jones Newswires
December 15, 2016 13:02 ET (18:02 GMT)
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