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Wednesday, August 18, 2021
Homebuilder confidence hits a 13-month low in July
The housing market has been in a frenzied state for over a year now, but the cracks in this market have been evident for some time.
And on Wednesday, we got another sign that the COVID-related boom in this market is starting to wane.
Homebuilder confidence as measured by the NAHB/Wells Fargo Housing Market Index tumbled to a 13-month low in July, coming in at a reading of 75, against expectations for the index to be unchanged at 80.
“While the demographics and interest for homebuying remain solid, higher costs and material access issues have resulted in lower levels of homebuilding and even put a hold on some new home sales,” said NAHB chief economist Robert Dietz.
“While these supply-side limitations are holding back the market, our expectation is that production bottlenecks should ease over the coming months and the market should return to more normal conditions,” he added.
The sharp rise in the price of lumber was a major market story in the spring, and back in June, we argued in the Morning Brief that this rise and fall would serve as a harbinger of things to come across the economy. The recent moderation in the price of used cars serves as an example.
The cost of building a home, of course, is about a lot more than lumber. As Dietz notes, supply-side limitations are still holding back housing, and it’s becoming less clear what the prospects are for these bottlenecks to clear.
Bloomberg’s Joe Weisenthal noted earlier this week that the backlog of ships waiting to be offloaded on Los Angeles area ports is almost back to pandemic-era highs. And data on business inventories published Wednesday showed that manufacturers continue to record sales at a faster clip than they can build their backlogs.
In other words, demand continues to outstrip supply across the economy.
In June, we noted that with sales slowing, housing was threatening to hold back economic growth. And indeed, the first look at second quarter GDP showed a sharp decline in residential investment, with headline gross domestic product (GDP) growth missing expectations. The latest data from S&P/Case-Shiller also showed home prices were rising at a record pace as of May; the next update on this data series is due later this month.
But as economic data continues to lap 2020’s most heavily distorted months, perhaps what we’re left with is less of a “swoon” in the housing market and more like a predictable normalization.
“The story here is straightforward, in our view,” writes Ian Shepherdson, chief economist at Pantheon Macroeconomics.
“[The] demand curve for single-family homes has moved back to where it stood before COVID, because the initial impulse to flee cities for the burbs has faded,” he wrote. “This process appears to have just about run its course, with mortgage applications steady in recent months, but the NAHB survey — along with the market and media narrative about the housing market — still needs to catch up.”
And if we all asked in the early days of the pandemic which booms would create industry step changes and which would be one-offs, the housing market appears to be affirming the latter.
What to watch today
7:00 a.m. ET: MBA mortgage applications, week ended August 13 (2.8% during prior week)
8:30 a.m. ET: Building permits, month-on-month, July (1.0% expected, -5.3% in June)
8:30 a.m. ET: Housing starts, month-on-month, July (-2.6% expected, 6.3% in June)
2:00 p.m. ET: FOMC Meeting Minutes
6:00 a.m. ET: Lowe’s (LOW) is expected to report adjusted earnings of $4.01 per share on revenue of $26.88 billion
6:30 a.m. ET: Target (TGT) is expected to report adjusted earnings of $3.48 per share on revenue of $24.51 billion
8:00 a.m. ET: The TJX Companies (TJX) is expected to report adjusted earnings of 57 cents per share on revenue of $11.03 billion
After market close: Robinhood Markets (HOOD) is expected to report adjusted losses of 26 cents per share on revenue of $559.5 million
4:20 p.m. ET: Nvidia (NVDA) is expected to report adjusted earnings of $1.01 per share on revenue of $6.33 billion
4:05 p.m. ET: Cisco Systems (CSCO) is expected to report adjusted earnings of 83 cents per share on revenue of $13.02 billion
After market close: Victoria’s Secret & Co. (VSCO) is expected to report adjusted earnings of $1.59 per share on revenue of $1.68 billion
After market close: Bath & Body Works (BBWI) is expected to report adjusted earnings of $1.03 per share on revenue of $3.10 billion
European markets open higher after a day of selling [Yahoo Finance UK]
Yahoo Finance Highlights