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July 16, 2019, 10:00 a.m. EDT

Home builder confidence, up 1 point in July, still lags 2018

‘Labor, lumber, and land’ are all major components of builders’ trade, and also their biggest complaints for the past several years

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By Andrea Riquier


Bloomberg News/Landov
A worker sweeps near a new home under construction in Phoenix, Arizona.

The numbers: Home builder confidence rose one point to 65 in July, as measured by the National Association of Home Builders’ monthly index . That matched the consensus forecast among economists surveyed by Econoday.

Any reading over 50 signals improvement.

What happened: Home builder confidence tumbled in 2018 as momentum in the housing market wobbled. It’s perked up a bit so far this year. even as questions about the health of the overall market remain.

In June, the gauge of current sales conditions and the one that tracks expectations for the next six months both rose one point, to 72 and 71, respectively. The tracker of buyer traffic was also up one point, but stuck below the neutral 50 line, at 48.

At a reading of 65, the headline index is much higher than the 58 level at which it began the year. But the year-to-date average is 63, still below 67 last year, and 68 in 2017.

Read: Homebuilder stocks get a downgrade, as housing market flashes warning signs

Big picture: NAHB’s index has historically offered an early read on the pace of new home construction, but in the aftermath of the housing bust, that link has been weaker. As the Great Recession took hold, builders were left with too much inventory, so it suits them to run leaner operations now. They’ve also spent the past decade griping about business conditions, from pricier land and less-available labor, to local policies and regulations.

See: It’s green shoots for the housing market, home builders say

What they’re saying: “History suggests that the recent decline in mortgage rates will spur a rebound in home sales and construction later this year,” said Peter Berezin, chief global strategist for BCA Research, before the NAHB data release. “The fact that homebuilder confidence has bounced back this year and purchase mortgage applications have reached a cycle high is encouraging in that regard.”

Market reaction: Shares of large publicly-traded builders have surged this year on sentiment that economic and financial conditions should support more buying. Shares of D.R. Horton, Inc. /zigman2/quotes/202032328/composite DHI +0.90%   are up more than 30% in the year to date, while Meritage Homes Corporation /zigman2/quotes/209069331/composite MTH +0.71%   shares have gained nearly 50%. Two ETFs /zigman2/quotes/202739297/composite XHB +0.35%   /zigman2/quotes/203468436/composite ITB +0.71%    that track the broader builder universe have each gained about 30%.

Related: Americans are driving until they qualify again, and builders are responding

/zigman2/quotes/202032328/composite
US : U.S.: NYSE
$ 53.97
+0.48 +0.90%
Volume: 3.55M
Oct. 18, 2019 6:30p
P/E Ratio
12.96
Dividend Yield
1.11%
Market Cap
$20.31 billion
Rev. per Employee
$1.93M
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/zigman2/quotes/209069331/composite
US : U.S.: NYSE
$ 75.00
+0.53 +0.71%
Volume: 472,255
Oct. 18, 2019 6:30p
P/E Ratio
14.44
Dividend Yield
N/A
Market Cap
$2.87 billion
Rev. per Employee
$4.61M
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/zigman2/quotes/202739297/composite
US : U.S.: NYSE Arca
$ 45.42
+0.16 +0.35%
Volume: 1.47M
Oct. 18, 2019 8:00p
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/zigman2/quotes/203468436/composite
US : U.S.: Cboe BZX
$ 45.27
+0.32 +0.71%
Volume: 941,858
Oct. 18, 2019 4:10p
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Andrea Riquier reports on housing and banking from MarketWatch's New York newsroom. Follow her on Twitter @ARiquier.

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