We’re all happy to see the Real Estate market continue to strengthen, but when homes are selling so well, the possibility of inventory shortages becomes a potential hurdle to overcome. The good news is, it looks like the home builders are hard at work to keep up with demand.
It’s important to keep track of what the construction industry is doing, not only to see how much new inventory builders are creating and how that factors into the supply / demand equation, but also as a predictor of what’s coming in the future, and where some of the industries tied to housing think things are headed. There are several leading indicators we can follow, and when it comes to looking at how we’re doing in creating new inventory to match demand, we only need to look at the latest housing starts and permits.
In June, housing starts (groundbreakings on new home construction) jumped 26.6%. Permits to build new homes rose 30% compared to last June. Both of these numbers reached 8 year highs, which shows the confidence the home builders have in the upcoming demand for more home sales. In fact, the National Association of Home Builders / Wells Fargo Housing Market Index reports that “Builder Confidence” hit a level of 60 in June. A reading of 50 or higher means that more builders rate conditions as good versus poor. For comparison, the housing market hasn’t seen a builder confidence number that high since 2005.
To look for other indications of the strong construction market tied to housing, we can always keep an eye on the good old stock market. Although less directly tied to housing (the market will always fluctuate more with investor confidence and the broader economy), it’s still a good barometer when we examine specific industries that are related to Real Estate and home building.
As of the end of June, the Building Products Industry in the Industrials market sector is up 6.06% for the year, versus the virtually flat S&P 500 ( -.06% Year to Date). Building Products tracks manufacturers of building components, home improvement products, and equipment. The Construction Materials Industry (which includes cement, concrete, brick and other basic materials) is tracking up 29% for the year!
This is all great news, considering how badly we need new housing. Economists say that we need about 1.5 million units of new housing annually to bring supply back in line with demand, so we need to see the builders continue to churn out the groundbreakings and keep up with this surging market.
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