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The level of confidence among American home builders fell in April but remains high according toan industry trade group. The National Association of Home Builders said its housing-market index dropped in April by three points, a slight fall from the highest level from over a decade. Builders are reporting continued interest from potential home buyers, as all three of the index components remain strong: current sales, sales expectations, and buyer traffic. Source / Data: National Association of Home Builders
Andre’ Nabors Chair, The AARC
Slow and Steady Growth Wins The Race for Home Building – and the Economy
Gregg Robb and Andrea Riqiuer, Realtor.com | May 15, 2017
That’s probably a good thing.
It means housing construction will continue to buoy economic growth for some time—and data out this week will shed light on the strength of the residential construction sector.
The National Association of Home Builders releases its monthly index of builder confidence Monday, followed on Tuesday by the Commerce Department’s data on how many new homes were started in April.
Builder confidence is a reasonably good predictor of housing starts, the process of breaking ground on a home, NAHB Chief Economist Robert Dietz told MarketWatch.
With inventory of previously-owned homes at long-time lows, economists and housing analysts are looking to home builders to relieve some of the supply pressures in the housing market. And since housing construction—particularly single-family homes that need flooring, furniture and more – helps boost economic growth that may even help lengthen the business cycle.
Builders broke ground on 784,000 single-family homes in 2016, and Dietz forecasts a 9%-10% gain in 2017 and in 2018. He defines a normal level of production—one which would sustain population growth and replace older and obsolete homes—as about 1.3 million single-family starts. He doesn’t think the U.S. will reach that level until 2021 or so.
Housing starts have run at about a 1.2 million pace for the past several months. Total starts and single-family only are about 64% of their long-run averages.
Dietz and other private housing analysts also believe the trend toward building more single-family homes, away from apartments, will continue. In the years after the financial crisis, when many people were unable or unwilling to purchase homes, apartment construction boomed.
Single-family housing starts were roughly two-thirds of all starts in 2016, compared to about three-quarters in 2000. As builders shift production, that’s a bet on a stronger economy and housing market. But it’s also an economic boost.
NAHB estimates that building the average single-family home generates about three jobs, while building a multi-family unit generates just one.
For a construction industry that lost 1.5 million jobs in the wake of the crisis, it helps explain why the pace of recovery has been so slow. Builders are grappling with lots of higher input costs, including land and materials.
Manufacturing data is also on deck this week, and two readings early in the week should show a bit of a cool down in the factory sector.
First, on Monday, the Empire State Index tracking activity in New York for May should show a reading close to the 5.2% showing in April. This would be down from eye-popping readings of 16.4 in March and 18.7 in February.
On Tuesday, April industrial output should be up 0.4%, economists believe, down slightly from a 0.5% rise in March and well off the recent top, a 0.8% rise seen in December.
At these levels, both readings would “show manufacturing settling back into a more modest expansion,” said Terry Sheehan, senior analyst at Stone McCarthy Research.
Andrea Riqiuer, Realtor.com | May 4, 2017
The 30-year fixed-rate mortgage averaged 4.02%, down one basis point during the week. The 15-year fixed-rate mortgage was unchanged at an average of 3.27%. The 5-year Treasury-indexed hybrid-adjustable-rate mortgage averaged 3.13%, up from 3.12%.
Those rates don’t include fees associated with obtaining mortgage loans.
The 10-year Treasury note, which the 30-year mortgage roughly tracks, was little changed during the week as investors awaited a Federal Reserve interest rate decision and a health care vote from Congress.
The scant housing data that’s emerged over the past week, an index of pending home sales for March, signalled that the housing market continues to be skewed by extremely tight inventory.
Builder Confidence Continues on Upward Trend
National Association of Home Builders, May 15, 2017
In a further sign that the housing market continues to strengthen, builder confidence in the market for newly-built single-family homes rose two points in May to a level of 70 on the National Association of Home Builders/Wells Fargo Housing Market Index (HMI). This is the second highest HMI reading since the downturn.
“This report shows that builders’ optimism in the housing market is solidifying, even as they deal with higher building material costs and shortages of lots and labor,” said NAHB Chairman Granger MacDonald, a home builder and developer from Kerrville, Texas.
“The HMI measure of future sales conditions reached its highest level since June 2005, a sign of growing consumer confidence in the new home market,” said NAHB Chief Economist Robert Dietz. “Especially as existing home inventory remains tight, we can expect increased demand for new construction moving forward.”
Derived from a monthly survey that NAHB has been conducting for 30 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.
Two of the three HMI components registered gains in May. The index charting sales expectations in the next six months jumped four points to 79 while the index gauging current sales conditions increased two points to 76. Meanwhile, the component measuring buyer traffic edged one point down to 51.
The three-month moving averages for HMI scores posted gains in three out of the four regions. The Northeast and South each registered three-point gains to 49 and 71, respectively, while the West rose one point to 78. The Midwest was unchanged at 68.
Editor’s Note: The NAHB/Wells Fargo Housing Market Index is strictly the product of NAHB Economics, and is not seen or influenced by any outside party prior to being released to the public. HMI tables can be found at nahb.org/hmi. More information on housing statistics is also available at housingeconomics.com.