Low rates push homebuilder optimism to highest since 1998

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U.S. homebuilders are riding a wave of optimism as record-low mortgage rates drive demand for new homes.

A gauge of builder sentiment jumped to 78, a six-point gain from July that pushed it to the highest level since 1998, according to the National Association of Home Builders/Wells Fargo Market Index. The August number was better than the median analyst estimate of 74 and matched a record in 35 years of the survey.

The index ended 2019 at a 20-year high but plunged when the coronavirus shut down the U.S. economy in March. Builders have bounced back since then, with the housing market an unexpected bright spot in an economy battered by the pandemic.

The demand for new housing is boosting builders, particularly because inventory of existing homes is low. An index that tracks the shares of builders touched a new intraday record on Monday. It had surged more than 140% since the stock market hit a low on March 23.

Still, navigating the coronavirus economy will be tricky for builders. Congress has yet to pass a new stimulus package, potentially adding to job losses if a deal isn’t reached. The housing recovery may be threatened by mounting unemployment, while higher prices for homes could deter some potential buyers.

A surge in lumber prices is another issue for the industry.

"The V-shaped recovery for housing has produced a staggering increase for lumber prices, which have more than doubled since mid-April," said Chuck Fowke, chairman of NAHB. "Such cost increases could dampen momentum in the housing market this fall, despite historically low interest rates."

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