Builder confidence falls back in September

Dive Brief:

Homebuilder confidence in the market for new single-family construction dropped three points in September to a reading of 64 on the National Association of Home Builders/Wells Fargo Housing Market Index.
The decline is largely a response to uncertainty from the recent hurricanes sweeping the Southeast and Gulf Coast, which have raised questions regarding labor and material availability.
All three sub-indices fell for the month, but they remain stable. Current sales conditions dipped four points to 70, sales expectations for the next six months decreased four points to 74 and buyer traffic dropped one point to 47.

The decline is largely a response to uncertainty from the recent hurricanes sweeping the Southeast and Gulf Coast, which have raised questions regarding labor and material availability.

Mary Tyler March/Construction Dive, data from National Association of Home Builders

Dive Insight:

The measure could turn up in the coming months as rebuilding efforts in hurricane-damaged areas get underway. Initial estimates have the total costs of damage from Hurricanes Harvey and Irma at up to $200 billion, with recovery and rebuilding efforts expected to push the construction industry to a strong Q4.

Labor is expected to be tight in the storms' wake. Construction employment slowed for the second-straight month in August, with the residential sector adding 1,500 jobs during the period. As the construction communities in the already-growing Florida and Texas markets focus on repairs, shortages are likely

Meanwhile, material prices rose from July to August, though industry observers are unsure of how demand from the hurricane-related repair work will affect prices in the long term. For now, strong demand for roofing, drywall, PVC and plywood could present availability challenges. And those effects are set to ripple beyond the Gulf Coast and Southeast. Rebuilding efforts, too, may be slow to come as a shortage of insurance adjusters struggles to process insurance claims.

As the industry begins the rebuilding effort, builders will also have to confront the typical up-and-down nature of the housing market. Housing starts fell in July due to a sharp downturn in the multifamily segment, missing analyst expectations. Building permit authorizations also fell, which could push builder confidence down in the coming months.

August's housing starts report released tomorrow, however, will provide more clarity on current and upcoming residential construction activity.