The NAHB builder April index fell 3 pts to 68. The estimate was 70 but it still is well above the pre election level of 63 in October and certainly well higher than the breakeven of 50. Both the Present Situation and Future Expectation components were lower by 3 pts but are both still higher than 70. Prospective Buyers Traffic fell 1 pt to 52 and has been above 50 in 4 of the past 5 months after spending more than 11 years below it. The Chairman of the NAHB said “builders are reporting strong interest among potential home buyers” and this is reflected in the buyers traffic number but everything is relative as this component is just 2 pts above 50. On the supply/builder side, the NAHB Chief Economist said “builders are facing several challenges, such as hefty regulatory costs and ongoing increases in building material prices.”
Bottom line, with the sales of new homes well below historical trends and the election adding hope on the tax and regulatory side, builders are certainly confident that it’s catch up time. What’s most apparent though is the catch up needs to take place in the price range below $250k where the most amount of current demand is and where lies the least amount of inventory (thank you private equity for buying all those foreclosed homes). However, it’s at the lowest possible margin for builders. As for where this demand is coming from, Millennial’s are the key demographic and driving force for first time households and they are buying homes later in life than previous generations and are also more inclined to rent for a variety of known reasons. Therefore, I don’t see any notable rise from here in the homeownership rate which sits at 63.7% as of Q4 vs the average since 1965 of 65.3%.