Builder Confidence Jumps in December to Eight-month High

By Mark Lieberman

Managing Director and Senior Economist

Highlights:

  • Housing Market Index SURGED five points in December to 74, its highest level in more than 17 years
  • All three index components IMPROVED led by an eight-point gain in buyer traffic to 58, its highest level since the index began in 1985;
  • By region, builder confidence ROSE 11 points in the Midwest eight points in the West

Image result for home building

Even as Congress inches toward passage of a tax bill with potentially devastating consequences for housing, builder confidence jumped in December to its highest level since June 1999, reaching 74, a five-point gain from October, the National Association of Home Builders (NAHB) reported Monday.

The tax bill, which threatens to upend government incentives for home ownership is expected to be voted on by Congress Tuesday. Under the bill, deductions for mortgage interest and property tax payments would be sharply curtailed, increasing the net cost of owning a home.

Without those incentives, home prices are expected to drop which could explain builder optimism as new homes become more affordable even as the cost of ownership loses its tax advantages.

Builders appeared buoyant, improving their assessment of the near-term market for home buying and the market six months hence. Indeed, the survey, conducted at the beginning of each month, indicated buyer traffic to model homes had improved and was at its highest level since the NAHB survey began in 1985.

It remains difficulty to classify the purchase of a home: is it an investment or do the ongoing expenses of mortgage and tax payments represent the monthly purchase of shelter. The tax treatment of mortgage interest and real estate taxes has historically served to reduce the net burden of those expenses.

But, the NAHB seemed to ignore the negative aspects the tax bill might have on homeownership when it endorsed the conference committee version of the bill: “NAHB fully supports the final conference report on tax reform legislation and commends the work of House-Senate conferees,” the association said in a weekend statement. “This comprehensive overhaul of the nation’s tax code will help middle-class families, maintain the nation’s commitment to affordable housing and ensure that small businesses are treated fairly relative to large corporations. Lower tax rates and a fair tax code will spur economic growth and increase competitiveness, and that is good for housing. We urge the House and Senate to move quickly to pass this legislation.”

The Census Bureau and Department of Housing and Urban Development will report tomorrow on new housing permits and starts albeit for November.

Hear Mark Lieberman every Friday on P.O.T.U.S. radio, Sirius-XM 124, at 6:20 am Eastern Time. Follow Mark Lieberman on Twitter at @ foxeconomics.

 

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