The August NAHB home builder survey rose 4 pts m/o/m to 68 and better than the estimate of no change. Present conditions rose by 4 pts while the Outlook was up by 5. Prospective Buyers Traffic though was up by just 1 pt and is still below 50 at 49. Notwithstanding this last important component, the NAHB said “Our members are encouraged by rising demand in the new home market.” I hope so but affordability is becoming more and more of an issue. Last week this same NAHB said its home affordability index fell to the lowest level since Q3 2008. On the supply side, the NAHB repeated the issues that remain for builders: “Builders continue to face supply side challenges, such as lot and labor shortages and rising building material costs.” It is these factors that are also rising the price of a home and “impeding a more robust housing recovery” according to last week’s NAHB affordability press release.
Bottom line, the spring housing transaction season was pretty good and the small amount of inventory of existing homes certainly begs for more inventory but this need is mostly for homes priced below $250k. This is also where rising costs (as stated above) are making it tough to deliver profitably. On the pricing side, I keep repeating that evidence has grown that buyers are becoming much more sensitive to these persistent 5-6% price gains that has put the median home price at a record high. It’s great for sellers but more challenging for buyers who have to come up with a down payment on ever rising prices. Low mortgage rates and 3% down payment deals help but pricing issues helps to explain the historically low homeownership rate. Notwithstanding the confidence beat, ITB, the builder etf is down on the day.
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Business inventories in June grew by .5% m/o/m, one tenth more than expected and up from .3% growth in May after declining .2% in April. As sales rose .3%, the inventory to sales ratio did tick up to 1.38 from 1.37 and while a modest increase is the most since November. Excessive auto inventories was clearly evident in June as they rose .7% m/o/m and 7.4% y/o/y. Bottom line, maybe we get a very slight increase in the Q2 GDP revision but all eyes are on Q3 which today we are dead smack in the middle of.
Peter is the Chief Investment Officer at Bleakley Advisory Group and is a CNBC contributor.