The numbers: The construction industry’s outlook
continued to improve in October, according to research from a trade group
The National Association of Home Builders’ monthly
confidence index rose two points to a reading of 85 in October, the trade group
This was the third month in a row in which the index reading hit a record high, and together with September’s figure, only the second time that the confidence measure was at or above 80.
Index readings over 50 are a sign of improving confidence.
The index dropped below 50 in April and May as concerns related to the pandemic
What happened: The index that measures sentiment
regarding current sales conditions increased two points to 90, while the index
of expectations for future sales over the next six months rose three points to
88. The gauge regarding prospective buyers remained the same at 74.
At a regional level, though, confidence varied. The indexes
for the Northeast and the West both increased seven points in October to
readings of 88 and 95 respectively. But in the Midwest the index dropped one
point to 77, and it fell two points in the South to 83.
“New single-family home sales are outpacing starts by a
historic margin,” Robert Dietz, chief economist at the National Association of
Home Builders, said in the report. “Bridging this gap will require either a
gain in construction volume or reductions in available inventory, which is
already at a historic low in terms of month’s supply.”
The big picture: While summer may now be gone, buyers are still searching for homes as if the weather was warm. Interest rates continue to drop to all-time lows — on Thursday, Freddie Mac
reported that the 30-year fixed-rate mortgage averaged a record low of 2.81.
Looking to take advantage of the low rates, Americans have
flooded the real-estate market. But with the inventory of existing homes so
tight, many are considering newly-constructed homes instead.
The continued recovery in home sales should remain positive
for the rest of the economy, though rising home prices could push some buyers
out of the market eventually.
What they’re saying: “Buy a home and it needs to be filled with all sorts of consumer goods: furniture, appliances, etc.,” Renaissance Macro Research head of economics Neil Dutta wrote in a research note. “The link between consumption and home sales has been well established.”
Market reaction: The Dow Jones Industrial Average
and the S&P 500
index were flat Monday morning in spite of positive economic data out of China and hopes of a stimulus deal in the U.S.