What has Homebuilders so Confident?

Oct 23

Oct 23 What has Homebuilders so Confident?

Homebuilders are a confident group according to the National Association of Home Builders whose October sentiment index rose 4 points to 68. Anything above 50 is considered positive.

Here in the west, sentiment is a smoking 77. In the South, 68, and in the Northeast sentiment rose one point to 50. In the midwest, 63 is the number.

Diana Olick writes for CNBC,

Of the Home Builders index's three components, current sales conditions rose five points to 75. Sales expectations over the next six months also rose five points to 78. The component measuring buyer traffic rose just one point to 48 and is the only measure in negative territory.

Weak traffic is not a good sign, and should be followed carefully.

Olick reports that lumber is now up 21 percent from the end of August, when Hurricane Harvey struck, and continues to rise. The fires in Northern California, which destroyed more than 6,000 structures already, are only adding to the lumber price spike and the labor shortage created by the hurricanes in the south. Olick explains,

In Houston, thousands of homes were flooded during Hurricane Harvey, and just a week after the water receded some contractors said they already had a waiting list of over a year to do repairs. For homes completely destroyed, the list was even longer.

Steve Brown writes for Banc Investment Daily,

It is estimated 10,000 homes and other structures have been destroyed by recent natural disasters in the US. Unfortunately, the positive impact of a building boom that usually follows such things may be slower to come, as the construction industry deals with a labor shortage, labor costs are rising and raw materials costs are high.

Here in Las Vegas new home sales are up 15.8% since a year ago, according to Dennis Smith of Home Builders Research. “The median price of the new home closings in September was $355,000, another all-time high,” Smith writes. “This is the second consecutive month we have documented a record median new home price. The September median is a year to year change (increase) of $32,232, or 10 percent.”

The resale median price continues to climb at $235,000 and inventory continues to be in short supply at 1.8 months. Smith reminds us that a normal market inventory would be 6 months worth. He points out, “There are still boatloads of homes underwater, or almost underwater, essentially keeping those owners from selling their home and buying another. However, there have been a lot of out of town buyers that have propped up the market and have kept the recovery moving forward.”

Smith worries about mortgage rates and believes 5% could kill the home buying market.

The Vegas housing guru writes, “Time and time again it has been proven that a solid housing market is a major key to economic growth of any community. Therefore, we assume smarter heads will prevail, and will keep the mortgage rates under 4.5 percent to allow the housing market to continue to gain sales and strength.”

I’m not sure who the “smarter heads” he’s referring to are. But Bloomberg reports,

The outperformance of longer-maturity debt has been a dominant theme in the market for months. Now, open interest data show investors are unwinding wagers that the slope of the yield curve from five to 30 years will fall, after it turned the flattest in nearly a decade.

A steepening of the yield curve will put mortgage rates above 5% for the first time since 2011.