In a sign that housing continues to lead the economy forward, builder confidence in the market for newly-built single-family homes increased six points to 78 in August, according to the latest NAHB/Wells Fargo Housing Market Index (HMI) released today. The HMI now stands at its highest reading in the 35-year history of the series, matching the record that was set in December 1998.

“The demand for new single-family homes continues to be strong, as low interest rates and a focus on the importance of housing has stoked buyer traffic to all-time highs as measured on the HMI,” said NAHB Chairman Chuck Fowke. “However, the V-shaped recovery for housing has produced a staggering increase for lumber prices, which have more than doubled since mid-April. Such cost increases could dampen momentum in the housing market this fall, despite historically low interest rates.”

“Housing has clearly been a bright spot during the pandemic and the sharp rebound in builder confidence over the summer has led NAHB to upgrade its forecast for single-family starts, which are now projected to show only a slight decline for 2020,” said NAHB Chief Economist Robert Dietz. “Single-family construction is benefiting from low interest rates and a noticeable suburban shift in housing demand to suburbs, exurbs and rural markets as renters and buyers seek out more affordable, lower density markets.”

Derived from a monthly survey that NAHB has been conducting for 35 years, the NAHB/Wells Fargo Housing Market Index gauges builder perceptions of current single-family home sales and sales expectations for the next six months as “good,” “fair” or “poor.” The survey also asks builders to rate traffic of prospective buyers as “high to very high,” “average” or “low to very low.” Scores for each component are then used to calculate a seasonally adjusted index where any number over 50 indicates that more builders view conditions as good than poor.

All the HMI indices posted gains in August. The HMI index gauging current sales conditions rose six points to 84, the component measuring sales expectations in the next six months increased three points to 78 and the measure charting traffic of prospective buyers posted an eight-point gain to reach its highest level ever at 65.
Looking at the three-month moving averages for regional HMI scores, the Northeast jumped 20 points to 65, the Midwest increased 13 points to 63, the South rose 12 points to 71 and the West increased 15 points to 78.

here's more demand--and less supply--for rural and suburban neighborhoods than cities as the pandemic influences homebuyer preferences. Still, prices are up 6.7% in urban areas.SEATTLE, Aug. 17, 2020 /PRNewswire/ -- (NASDAQ: RDFN) — The median sale price for homes in rural areas nationwide increased 11.3% year over year in the four weeks ending August 2; it rose 9.2% in suburban areas, according to a new report from Redfin, the technology-powered real estate brokerage.

Urban areas saw a smaller 6.7% home-price increase. Homes in rural areas have had higher price growth than suburban and urban areas since April.
"We've been speculating about increasing interest in the suburbs and rural areas since the start of the pandemic," said Redfin economist Taylor Marr. "Now we're seeing concrete evidence that rural and suburban neighborhoods are more attractive to homebuyers than the city, partly because working from home means commute times are no longer a major factor for some people. And due to historically low mortgage rates, interest is turning into action. There will always be buyers who choose the city because their jobs don't allow for remote work or they place a premium on cultural amenities like restaurants and bars—which will eventually come back—but right now the pendulum is swinging toward farther-flung places."
Homebuyers shift searches from cities to rural areas and suburbs
The pandemic has caused 13% of homebuyers to search for homes in a different area than originally planned, according to a survey of more than 1,000 people who plan to buy a home within the next 12 months conducted by Redfin from July 19-21. Redfin asked those 140 buyers two questions: 1) What best describes where you were searching for a home before the onset of the pandemic, and 2) What best describes where you're now searching for a home?
Results indicate that interest in rural areas and suburbs is up and interest in urban areas is down.

Most (59%) respondents indicated that they're searching for a home in the same type of area as they were before the pandemic, with the most common combination of answers (30%) being suburban before and suburban now, though those respondents are likely searching in a different suburb or an entirely different metro area.
Of respondents who are now looking to move to a different type of area, the most common combination was that of people searching for a home in an urban area before and a suburban area now, with 19% selecting that pathway.
The outsized interest in rural areas and suburbs is likely due to the coronavirus-driven desire for more indoor and outdoor space and the prevalence of working remotely. The pandemic has caused 21% of homebuyers to want a designated place to work from home and the same share to want more outdoor space, according to the aforementioned survey.
The typical home that went under contract last month in a rural or suburban neighborhood is more than 1,800 square feet versus about 1,500 square feet for the typical urban home, a size difference that helps explain why farther-flung neighborhoods are more attractive to homebuyers during the pandemic.
Home sales are flat from last year in rural areas and down in suburban and urban areas
Home sales in rural areas were almost flat from last year (-0.9%) during the four weeks ending August 2, compared with a 4.7% dip in suburban neighborhoods and an 8.9% decline in urban areas. Pending sales of homes in rural areas were up 6.3% year over year in the four weeks ending August 2, compared with 9.1% for suburban neighborhoods and 5.6% growth for urban areas.
Home supply in rural areas was down 37.9% year over year and down 31.8% in the suburbs during the four weeks ending August 2, compared with a 21.3% decline in urban areas. 
New listings in rural areas fell 14.2% year over year, and they dropped 3.6% in suburban neighborhoods. In urban areas, new listings were flat from last year, up 0.5%, further evidence that demand is outpacing supply in the suburbs more than the city and an indication that current homeowners in rural areas are more content with their living situations than current homeowners in urban areas.
"I've never been busier in my entire career," said Abby Wetzel, a Redfin agent in Snohomish County, WA, located about 20 miles north of Seattle and made up of suburban and rural areas. "Most of my recent buyers are Washington locals moving up here from Seattle and a lot of them are first-time homebuyers who are searching because of low interest rates. Their budgets go much further outside the city, and since they're not commuting to Amazon or another workplace every day, all of a sudden they have flexibility to prioritize space and privacy. Those things that have always been desirable, but more so in the coronavirus era."
Homes in rural and suburban areas make up a slightly larger portion of searches than last year
The increases in the shares of Redfin.com pageviews for homes in rural and suburban areas from July 2019 to July 2020 are small but statistically significant, as is the decrease in the share of pageviews for homes in urban areas. The share of pageviews increased from 9.5% to 10.4% for rural homes and from 63.9% to 64.4% for suburban homes during the period, and the share for urban homes fell from 26.5% to 25.2%.
"Newly remote workers from New York City are buying properties in rural areas like Warren County, NJ and Sussex County, NJ, but I expect that some of these buyers may eventually catch post-COVID buyer's remorse," said Darlene Schror, a Redfin agent in northern New Jersey. Warren County is roughly 65 miles west and Sussex County is more than 70 miles northwest of Manhattan. "Post-pandemic, buyers may realize that while their new neighborhoods make for a nice weekend getaway, the long commute may become unsustainable should things go back to normal.  And they'll miss city amenities like high-quality restaurants, shopping centers and walkability."
"Lenders should be nervous that rural markets are affected by situational price increases," Schror continued. "Rural home values are going up now because of the pandemic, but if people lose their jobs or decide they'd rather live closer to the city, these buyers may be sitting in homes for which they've overpaid a time when they need to re-sell."