Home builders

Homebuilders Gain Confidence Amid Persistent Supply Chain Problems


Numbers

Homebuilder sentiment improved for the second month in a row, rebounding further from its late summer low.

The National Association of Home Builders’ monthly confidence index rose four points to 80 in October, the professional group said on Monday. The figure represents the highest point since July.

“While demand and home sales remain strong, builders continue to face ongoing supply chain disruptions and labor shortages that are delaying completion times and putting pressure on them. on the rise on the prices of building materials and homes, ”Chuck Fowke, a custom home builder from Tampa, Florida. , who is currently president of the association, said in the report.

Readings above 50 on the index signal an improvement in confidence, while readings below this threshold reflect worsening conditions.

What happened

The current selling conditions gauge recorded the largest gain, increasing five points to 87. The measure of traffic from potential buyers rose four points to 65, while the index of selling expectations increased. over the next six months increased by three indicates 84.

All regions saw a monthly increase in builder confidence in October. However, over the past three months, builder sentiment was stable in the Northeast, South and West, increasing only slightly in the Midwest.

The big picture

A separate report by financial services firm BTIG based on a survey of small and midsize homebuilders found that 47% of those builders voluntarily limited their sales in September.

“These automakers are raising prices more aggressively and seeing slower traffic than their peers, and an overwhelming majority cite supply constraints / uncertainty as their main justification for limiting orders,” BTIG analysts wrote. in the report. Unsurprisingly, only 34% of carmakers surveyed saw their sales increase year over year in September, up from 49% in August.

The end result of continued supply chain disruptions will be an increase in the prices of homes sold and built. But at a time when interest rates are set to rise, this could quickly cause many Americans to stop buying homes, which could have ripple effects on both home buying and renting. in the housing market.

“Policymakers need to focus on fixing the broken supply chain,” said Robert Dietz, chief economist for the National Association of Home Builders. “This will further stimulate construction and help ease the upward pressure on home prices. “

What they say

“Rampant inflation in the housing market is anything but transitory and a consequence of keeping key rates urgently low,” wrote Sal Guatieri, senior economist at BMI Capital Markets, in a research note.

“As we saw last week in the details of the University of Michigan Consumer Sentiment Survey, consumer opinions on the housing market remain near all-time lows. This is not surprising given that housing affordability has declined dramatically over the past six months, ”Deutsche Bank analysts wrote in a research note.

Market reaction: lower Dow and S&P

The Dow Jones Industrial Average DJIA,
-0.16%
and the S&P 500 SPX,
-0.26%
slightly before the publication of the report. But that was a mixed bag for homebuilder stocks with Lennar Corp.

LEN,
+ 0.79%
while other companies like Toll Brothers Inc. TOL,
+ 0.85%
and PulteGroup Inc. PHM,
+ 0.90%
saw drops.