A Respite or a Reversal?

Home builder optimism stepped back this month. The Wells Fargo/NAHB Sentiment Index posted at 62 for November. For the past couple of months the index had posted at 64. (A reading over 50 means optimism outweighs pessimism.)

The future sales component was the most notable disappointment in the November numbers. Builder optimism eased five points to post at 70. This means builders still expect to sell a lot of homes in the coming months, just not as many as they expected last month.

The one consistently weak component in the index remains weak, though it was slightly less weak compared to October.  The traffic component rose one point to 48 in November. Lack of traffic has been a lingering problem for home builders. The component remains weak due to our biggest lament – lack of first-time buyers. We're hoping that D.R. Horton's success, which we reported on last week, in building and selling starter homes points to an overall increase in first-time buyer participation.

Builders were also a bit down due to less building activity in October. Housing starts dropped 11% to 1.06 million units on an annualized rate for the month. Most of the damage was concentrated in multi-family homes, which tumbled 25% to 338,000 units. The good news is that the drop in single-family homes was much less severe. Single-family starts were off 2.4% to 722,000 units.

Of course, our bread is buttered with sales. Multi-family units include both apartment and condominium construction. New condo and new single-family home sales remain elevated in most major metropolitan markets. Construction activity should remain brisk. Indeed, permits continue to trend higher. Single-family permits were up 2.45% to 711,000 units on an annualized rate in October.  Multi-family permits were up 6.8% to 439,000 units.

Next week, data on existing- and new-home sales will be released for October. Sales for both segments have trended higher (though not linearly) for 2015. We expect sales to continue to push higher through the first half of 2016. In other words, 2016 should look and feel a lot like 2015, at least from the outset.

Information provided by Jessica Regan.

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