There was more evidence that the housing sector remains the cornerstone of our economic recovery, as the National Association of Home Builders (NAHB) Housing Market Index, which is a real-time read on builder confidence, set another record high this month. Meanwhile, both Housing Starts and Building Permits rose from August to September and Existing Home Sales also came in strong.
Builder Confidence Reaches Another Record High
The National Association of Home Builders (NAHB) Housing Market Index rose from 83 to 85 in October, marking the second month in a row that it has set a record high. This report is a near real-time read on builder confidence, and any reading above 50 on this index that goes from 1 to 100 signals expansion.
All three components of the index were positive, with current sales conditions rising 2 points to 90, sales expectations in the next six months up 3 points to 88, and buyer traffic remaining unchanged at 74.
It's important to note that builders have said that they are being challenged by a lack of land, labor, and seriously spiking material costs.
“Traffic remains high and record-low interest rates are keeping demand strong as the concept of ‘home’ has taken on renewed importance for work, study and other purposes in the Covid era,” said NAHB Chairman Chuck Fowke. “However, it is becoming increasingly challenging to build affordable homes as shortages of lots, labor, lumber and other key building materials are lengthening construction times.”
Digging Deeper Into Housing Starts
Housing Starts, which measure the start of construction on homes, were up 1.9% from August to September and 11.1% when compared to September of last year. While this monthly reading was a bit lower than expectations, it's important to look more closely at the numbers.
Starts on single-family homes, which is the area where building is really needed due to the high demand, were up 8.5% from August and a whopping 22.3% versus last September.
The headline figure was brought down by starts on multi-family units, which declined 14.7%. All in all, this was a very strong report.
Building Permits, which are a good future indicator of Housing Starts, were up 5.2% from August and 8.1% on an annual basis. Permits for single-family homes once again were even stronger, up 7.8% from August and 24.3% from September of last year.
Interestingly, new homes that were sold but not started yet are up 69%, which shows how strong the demand has been. September's increase in both Housing Starts and Building Permits will help to meet some of this demand, but there is so much more demand than supply right now that many more homes are needed. The imbalance will continue to support home prices.
September Existing Home Sales Soar
Existing Home Sales came in strong in September, up 9.4% from August. This report measures closings, which means it likely represents buyers who were shopping for homes in June and July. Sales were also up nearly 21% when compared to September of last year, which is the highest pace since 2006 - when there were more than twice as many homes for sale. This certainly speaks to the strength of the current housing market.
Inventory remains tight, as there were only 1.47 million units for sale in September, down 19.2% compared to September of last year. This equates to just a 2.7 months' supply, marking a record low, whereas a 6-months' supply is considered indicative of a healthy housing market. Quite simply, if there were more homes for sale, sales would be even higher.
The median home price was reported at $311,800, up almost 15% year over year. Note that this doesn't mean homes are not affordable. It just means the middle-priced home that sold was $311,800, with half the homes selling below and half above that price. In September, a greater number of higher-priced homes sold and as a result, the median home price moved higher.
Inventory remained tightest among lower-priced homes, which is why not as many were sold. This impacted first-time buyers, which dropped from 33% to 31% of buyers in September. On average, homes were only on the market for 21 days, which is an all-time low.
Lawrence Yun, Chief Economist for the National Association of Realtors, noted, "There is no shortage of hopeful, potential buyers, but inventory is historically low. To their credit, we have seen some homebuilders move to ramp up supply, but a need for even more production still exists."
Reading Beneath the Headlines on Jobless Claims
Initial Jobless Claims fell below 800,000 for the week ending October 17, as 787,000 people filed for unemployment benefits for the first time. This marks a nice improvement from the previous week. California did report after two weeks of not providing figures, which adds to the positive nature of the decline in initial claims. California (+158K), New York (+56K) and Texas (+51K) reported the largest gains.
Continuing Claims, which measure people continuing to receive benefits, also improved by 1 million to 8.4 million people, marking the lowest level since March.
Looking past the headlines, one important thing to remember is that people can apply for Pandemic Emergency Unemployment Compensation (PEUC) after the 26 weeks of regular benefits expire, which extends their benefits for another 13 weeks. That figure increased by more than 500,000. So, while the report is an improvement, it needs to be dissected with the increase in pandemic unemployment assistance in mind.