Still Strong and Steady

After such a strong surge in September, a little slippage should be expected.

Home builder sentiment slipped slightly, posting at 63 on the Wells Fargo/NAHB’s Sentiment Index for October. This was a two-point slip compared to the September reading of 65. That said, the September reading was a five-point surge over the August reading. Builders remain overwhelmingly optimistic. And they’re even more optimistic about future home sales: the future sales component of the index rose a point to post at 72.

Sentiment correlates positively with action. The action is still good, though the headline reading was misleading.

New-home starts fell 9% to a 1.047 million units on annualized rate in September. The headline number would appear to temper optimism. But when we look closer, we find that the drop is entirely related to the volatile multi-family component, where starts fell 38%. The good news is that the larger, more important single-family component was up a strong 8.1% to 783,000 units for the month.

Now that a growing cadre of younger buyers is finally taking to homeownership, home builder sentiment and activity should remain elevated as we head into 2017.

It’s always nice to have a report corroborated by other sources. Last week, we reported on the increase in millennial interest in homeownership. This week reports that first-timers (mostly the young) will compose 52% of prospective home buyers in 2017. Last year, the same survey found that only 33% of prospective buyers were young first-time buyers. In addition, Zillow compiled a survey of 13,000 respondents and found that half were under age 36. These younger buyers accounted for 47% of all purchases.

Of course, this is all good news for housing, both new and existing. It’s also good news for the economy at large. Housing activity – construction, sales, materials, furnishings, lending, retail, and other services – account for roughly 12% of gross domestic product. Housing, more than any market segment, has pushed the economy forward over the past five years.  Given the trend of younger first-time buyers entering the market, we expect housing to remain the lead engine on the economic train.

That more millenials are finally embracing homeownership is no surprise (though we expected the trend to take hold sooner than later). Despite the surfeit of reports expounding the benefits of renting, owning imparts important psychic benefits renting can’t match. Knowing that you can paint a wall, decorate a room, or hang a picture to your liking without defending your actions is what makes a house a home, and you can really only have home if you own the house.

 Information provided by Jessica Regan.

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