Builder Confidence Slips In January, Strains Of Growth Exist

The confidence level among the nation's homebuilders slipped slightly in the first month of 2018 after reaching an 18-year high in December 2017, according to the National Association of Home Builders’ (NAHB) Housing Market Index. Nonetheless, homebuilders remain confident about the upcoming period, given the changes to the tax code that will likely promote the small business sector and boost broader economic growth.

The January 2018 reading was down two points to 72 from the December level of 74. Notably, all three Housing Market Index (HMI) components slipped meagerly in January. Current sales conditions decreased one point to 79. Buyer traffic decreased four points to 54 and sales prediction over the next six months slipped one point to 78.

Importantly, the HMI gauge of future sales expectations remained in the 70s, signaling that housing demand should continue to grow this year.

In the words of NAHB Chairman Randy Noel, a custom homebuilder from LaPlace, Louisiana, “Our members are excited about the year ahead, even as they continue to face building-material price increases and shortages of labor and lots.”

The positive momentum is expected to continue in 2018, courtesy of an improving economy, modest wage growth, low unemployment levels, positive consumer confidence, a tight supply situation and escalating rent costs.

After the solid 3.1% economic growth in the in the July-September quarter, the world’s largest economy is expected to have advanced 3.3% in the fourth quarter of 2017, per the latest Atlanta Fed’s real-time Q4 GDP growth estimate. This solid upbeat projection holds particularly true when one of the nation’s key economic drivers, i.e. construction activity, is gradually strengthening its footprint accompanied by a declining unemployment rate (4.1% in December 2017).

Disruptions caused by the hurricanes and other natural disasters seemed to have short lived as revealed from recent economic data reports.

However, challenges like inventory shortage are still prevailing in the U.S. real estate market and creating upward pressure on prices in several parts of the country, thereby affecting affordability. Again, higher construction costs along with rising land and labor costs pose a threat to the companies’ margins. Meanwhile, the recent tax-cut legislation that limited deductions for mortgage interest and property taxes is also expected to hurt sales to quite an extent.

Homebuilding Industry Performance

In the last six months, the Zacks Homebuilding Industry has widely outperformed the broader market (S&P 500), as you can see below. Again, investing in the industry might sound profitable right now, as it falls within the top 7% (19 out of 256 industries) of the Zacks Industry Rank, which hints at further growth.



Major homebuilders such as Century Communities, Inc. (NYSE:CCS) , D.R. Horton, Inc. (NYSE:DHI) , KB Home (NYSE:KBH) , PulteGroup, Inc. (NYSE:PHM) , CalAtlantic Group, Inc. (NYSE:CAA) , M/I Homes, Inc. (NYSE:MHO) , NVR Inc. (NYSE:NVR) and TRI Pointe Group, Inc. (NYSE:TPH) are well poised on the bullish fundamentals of the housing market.

While Century Communities, D.R. Horton, KB Home, PulteGroup sports a Zacks Rank #1 (Strong Buy), others carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

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PulteGroup, Inc. (PHM): Free Stock Analysis Report

KB Home (KBH): Free Stock Analysis Report

D.R. Horton, Inc. (DHI): Free Stock Analysis Report

NVR, Inc. (NVR): Free Stock Analysis Report

Century Communities, Inc. (CCS): Free Stock Analysis Report

TRI Pointe Group, Inc. (TPH): Free Stock Analysis Report

CalAtlantic Group, Inc. (CAA): Free Stock Analysis Report

M/I Homes, Inc. (MHO): Free Stock Analysis Report

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