Housing Continues to Lead the Economy Forward

Based on home-builder sentiment reported by the National Association of Home Builders (NAHB), new-home starts and new-home sales should end the year with a bang.

The NAHB’s home builder sentiment index surged six points to a 65 reading for September. This is the highest reading since last October. Optimism, in short, is at a multi-year high.

What’s more, the good vibes home builders are feeling were broadly dispersed. The present sales component of the index also rose 6 points to 71, which also ties the multi-year high set last October.  The future-sales component rose 5 points to also post at 71. This is the best reading since October 2005. The reading for traffic was up 4 points to 48, which matched the most recent high posted last November. The high before that? October 2005.

Taken in aggregate, there was little that was lagging on sentiment. In fact, sentiment points to accelerating activity – construction and sales – for the fourth quarter. This is important, given that new-home construction and all the accoutrement activities associated with that construction are strong contributors to overall gross domestic product (GDP) growth.

That said, recent new-home construction doesn’t quite jibe with the glowing future. Housing starts and permits actually fell in August. The former dropped a rather stark 5.4% to 1.142 million units on an annualized rate; permits were down 0.4% to 1.139 million. Both figures failed to meet most economists’ estimates.

But if we dig a little deeper, we find a few nuggets of good news. Permits for single-family homes rose 3.7% for August. This is a key indicator of housing demand and bodes well for future new-home construction and sales.  We’ll see if there is any immediate impact on recent sales. Data for August new-home sales will be posted this upcoming Monday.

As for existing-home sales, it’s more of the same.  They declined a second-consecutive month in August. This time, they declined 0.9% to 5.33 million on an annualized rate. Inventory, or rather the lack thereof, remains the scourge. Inventory was down again compared to this time last year.  Low supply frequently leads to higher prices. The median price of an existing-home home posted at $240,000 for the month, 5.1% higher than last year.

Information provided by Jessica Regan.

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