Economic Report: Home builders grow more confident in spite of continued supply-chain headaches

The numbers

Sentiment among home builders improved for the second consecutive month, rebounding further from the low point reached at the end of summer.

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

“Although demand and home sales remain strong, builders continue to grapple with ongoing supply chain disruptions and labor shortages that are delaying completion times and putting upward pressure on building material and home prices,” Chuck Fowke, a custom home builder from Tampa, Fla., who currently serves as the association’s chairman, said in the report.

 Readings above 50 on the index signal improving confidence, while readings below that threshold reflect worsening conditions.

What happened

The gauge on current sales conditions notched the largest gain, with a five-point increase to a reading of 87. The measure for the traffic of prospective buyers rose four points to 65, while the index of sales expectations over the next six months increased three points to 84.

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

The big picture

A separate report from financial services firm BTIG based on a survey of small- and mid-sized home builders found that 47% of these builders purposefully limited their sales in September.

“These builders are raising prices more aggressively and seeing slower traffic than peers, and overwhelming cite supply constraints/uncertainty as their key rationale for limiting orders,” the BTIG analysts wrote in the report. Unsurprisingly, only 34% of the builders surveyed saw sales increase year-over-year in September, versus 49% in August.

The end result of the continued supply-chain disruptions will be higher prices for the homes that are sold and built. But at a time when interest rates are expected to rise, that could quickly lead to many Americans getting priced out of buying a home, which could have ripple effects across both the home-buying and rental sides of the housing market.

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

What they’re saying

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

“As we saw last week within the details of the University of Michigan consumer sentiment survey, consumers’ views on the housing market remain near all-time lows. This is not surprising given that housing affordability has dropped off significantly over the last six months,” Deutsche Bank analysts wrote in a research note.

Market reaction: Dow, S&P drop

The Dow Jones Industrial Average 

 and the S&P 500

 dropped slightly ahead of the report’s release.  But it was a mixed bag for home-builder stocks with Lennar Corp. 

 increasing while other companies like Toll Brothers Inc.

and PulteGroup Inc. 

saw declines.

This post was originally published on Market Watch

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