Builder Confidence Growing, Countering Trends Elsewhere

For the second straight month, residential construction confidence numbers have reached levels not seen for almost a decade. November of 2005 last showed this much enthusiasm for the sector. Are those in the industry seeing something the rest of us aren’t? Or are the homebuilders playing the harbinger role?

What makes this all the more unusual is that some stiff headwinds remain the homebuilding sector. Mortgage rates are down, but the availability of these loans remains limited to those with pristine credit. There has also been an increase in the price of homes, which should have been pricing more people out of the market in some areas. Raw material costs are down and, while that bolsters confidence, labor costs are up. Additionally, it has been nearly as hard for the construction sector to find the skilled workers it needs as it has been for the manufacturers.

The confidence may not be well placed. Then again, there is recognition that there is still healthy demand out there and most of the housing markets are tight. It is also important to note that confidence levels have not been perennially accurate regarding this sector.

The three rationales for this expression of renewed confidence include the following:
  • Far fewer builders: The recession reduced the level of competition and that has meant more market share for the ones that have survived.
  • Falling jobless totals: This is something the sector has always had to watch closely as a key indicator.
  • Millenials market emerging: It seems that the older members of this cohort are finally starting to spend and buy homes as they get around to starting families. When this generation finally moves out of the lofts and their parent’s basements, the housing market will see a nice little surge of activity. The hope now is that all of this is not just wishful thinking.
- Chris Kuehl, Ph.D., NACM economist and co-founder of Armada Corporate Intelligence

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