BUILDER CONFIDENCE UNCHANGED, BUT STRONG

March 26, 2018

February reading of 72 is boosted by gauge of future sales expectations, now at a post-recession high.
 

 

 

Builder confidence in the market for newly-built single-family homes remained unchanged at a robust 72 level in February on the National Association of Home Builders/Wells Fargo

 

Housing Market Index (HMI), the NAHB said Thursday.

 

“Builders are excited about the pro-business political climate that will strengthen the housing market and support overall economic growth,” said NAHB Chairman Randy Noel, a custom home builder from LaPlace, La. “However, they need to manage supply-side construction hurdles, such as shortages of labor and lots and building material price increases.”

 

“The HMI gauge of future sales expectations has reached a post-recession high, an indicator that consumer demand for housing should grow in the months ahead,” said NAHB Chief Economist Robert Dietz. “With ongoing job creation, increasing owner-occupied household formation, and a tight supply of existing home inventory, the single-family housing sector should continue to strengthen at a gradual but consistent pace.”

 

The HMI component charting sales expectations in the next six months rose two points to 80, the index measuring buyer traffic held steady at 54, and the component gauging current sales conditions dropped one point to 78.

 

Looking at the three-month moving averages for regional HMI scores, the Midwest rose two points to 72, the South increased one point to 74, the West remained unchanged at 81, and Northeast fell two points to 56.

 

Any score above 50 reflects confidence, below 50 indicates the lack thereof.

 

The NAHB report was mirrored in a research note from BTIG analysts Carl Reichart and Ryan Gilbert, who put out the following on Tuesday:  The monthly BTIG/HomeSphere Homebuilder Survey solicits the perspective of approximately 75-100 small and mid-sized tract homebuilders nationally about sales, customer traffic and cost trends in their businesses. We received 89 responses this month. 

 Conclusion – Business continued to be solid in January for our respondents, with orders per store up for almost over half our surveyed companies (vs. January 2017) despite difficult comps. 40% reported orders better than expectations, with only 17% reporting orders below plan. Traffic surged, up year-over-year for nearly 2/3rds of our builders despite strength a year ago; we believe interest rate increases may be driving buyers into the tracts and “off the fence”. Pricing remains strong; 40% raised most or all base prices month-to- month. Cost creep continues: 72% reported higher materials costs in January vs. December; 59% reported higher labor costs. 

 Sales – 52% of respondents reported higher absorption rates per store in January 2018 vs January 2017, with only 15% reporting lower sales rates. 43% of respondents increased community count. 40% reported that sales were better than internal expectations but 17% noted sales were lower than forecast. Last year, January business was strong for builders as post-election interest rate increases drove potential buyers into communities; we believe the same “off the fence” move is happening now with 30-year mortgage rates up 33 bps year-to-date. 

 Traffic – 61% of builders noted higher traffic levels per community than January 2017; just 6% reported lower levels. Quality of traffic is high: 47% reported better quality of traffic in terms of ability or desire to buy than last year; only 2% reported worse quality than a year ago. 41% noted traffic levels ahead of expectations, with 10% reporting levels below what respondents anticipated. 

 Pricing–43% of builders raised all or most base prices across their product offerings in January relative to December; zero reported lowering all or most base prices. 

 Rawmaterials/labor/land costs – 59% of builders reported higher subcontractor labor costs in January 2018 vs. December 2017, with 72% reporting rising materials costs. 45% reported higher lot costs, and 17% reported decreased availability of acceptably-priced lots (vs. 15% noting an increase in availability). 

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