Homebuilder Confidence Up in August: Good Omen? - Analyst Blog

Homebuilders' confidence, as indicated by the National Association of Home Builders (NAHB)/Wells Fargo housing market index, rose 2 points to 55 in August - the highest level since January and the third consecutive monthly gain for the index.

The index reflects much better sales expectations in the upcoming quarters as demand for new homes increases with an improving job market. Any reading on this index above 50 indicates good housing conditions.

The housing slowdown that began in the second half of 2013 worsened as the harsh winter in the December quarter delayed construction, raising serious doubts regarding the strength of the housing market.

Moreover, shortage of lots and skilled labor, rising cost of materials and declining inventory of new homes were not making things easier for the builders. Also, the spike in mortgage rates and rising home prices were hurting demand which further added to the woes. As a result, many companies witnessed declining order trends in the December quarter.

However, as the winter chill subsided, several homebuilders recorded improving order trends in the March quarter. Order trends improved sequentially for D.R. Horton Inc. ( DHI ), PulteGroup, Inc.( PHM ), Toll Brothers, Inc. ( TOL ) and Ryland Group, Inc. ( RYL ).

However, the spring selling season turned out to be softer than expected slowing order growth on a sequential basis for large homebuilders like Lennar Corp. ( LEN ) and Pulte in the Jun 2014 quarter.

Also, some negative housing reports around that time suggested that home buyers might be skeptical of making home purchases. Pending home sales, new home sales (single-family houses), housing starts as well as building permits declined in June from the prior month.

However, the positive homebuilder confidence data raises hope that the housing sector might well be gathering steam. With a range of housing numbers expected later this month, the picture should become clearer.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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