Builders Buoyed
While the week started off with a bit of semi-bad news on consumer spending, by its end we learned that home builders are getting their mojo back.
Monday the Commerce Department’s report on retail sales was sort of a sucker-punch. Instead of the expected 0.2% increase there was a 0.3% dip and a downgrade of the previous month’s report from the 1.2% increase previously reported to 1.0%.
This weakest report since February raised fears of an again slowing economy although some analysts suggested the calendar with an early Memorial Day and delayed school closings (to make up snow days) have played a part.
The impact of the news was serious enough that Goldman Sacks slightly reduced its third quarter growth projections and murmurs began about rate hike delays. Of course, we’ve learned it takes very little to kick off that last response.
The week’s better news came from the National Association of Homebuilders (NAHB) regarding builder confidence. Theirs is not a particularly scientific study but in recent months it has shown that new home builders are finally seeing a steady rather than flashing light at the end of the tunnel.
Every month NAHB releases its Housing Market Index (HMI) which asks new home builders how they see the current market for new homes; what their expectations are over the next six months; and how they perceive buyer traffic at their sites. From their answers the Association constructs a seasonally adjusted 100 point index where a number over 50 indicates that more builders view conditions as good than as poor.
The HMI took a real hammering even before the market crashed in 2008, diving below the 50 point mark (from numbers in the low 70s) in mid-2006 and staying there. Well not really there–the composite eventually eroded into single digits, bottoming at 8 in early 2009.
The index’s recovery has been torturous, gaining a point one month only to fall back four or five the next. As it slowly gained ground, it toyed with the benchmark number several times, crossing it only to fall back one or two months later. Now builder confidence seems to have finally turned the corner and the HPI has remained above 50 since last July. This week NAHB announced that its index had not only finally hit 60 but last month’s index had been revised to that number as well–one last seen in November 2005.
Builder confidence in the market has been cited as one reason residential construction has been so slow to recover. Maybe now this last lagging housing indicator will finally join the party. Let’s hope so.