July 16, 2020

Homebuilder confidence climbed 14 points in July to 72 after having jumped 21 points in June and 7 points in May, after having plunged by 42 points in April which was the biggest single-month decline in the history of this series. At its current level of 72 homebuilder confidence is basically back to where it was prior to the recession.  It was at 74 in February.

NAHB Chairman Chuck Fowke said that,“Builders are seeing strong traffic and lots of interest in new construction as existing home inventory remains lean.  Moreover, builders in the Northeast and the Midwest are benefiting from demand that was sidelined during lockdowns in the spring. Low interest rates are also fueling demand, and we expect housing to lead an overall economic recovery.”

NAHB Chief Economist Robert Dietz said “While the housing market is clearly rebounding.  Lumber prices are at a two-year high, and builders are reporting rising costs for other building materials while lot and skilled labor availability issues persist.  New home demand is improving in lower density markets, including small metro areas, rural markets and large metro exurbs, as people seek out larger homes and anticipate more flexibility for telework in the years ahead. Flight to the suburbs is real.”

Traffic through the model homes climbed 15 points in July to 58 after having jumped jumped 22 points in June and 8 points in May after having declined 43 points in April.  The good news is that traffic continued to climb in July.  As stimulus checks have found their way into consumers’ mailboxes, the stock market continues to climb, and mortgage rates remain low at 3.25%, the interest in purchasing a new home will climb as we  move through the summer and into the fall.

The homebuilders expectations index climbed 8 points in July to 75 after having jumped 22 points in June and 10 points in May and having plunged by 39 points in April.

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As as a result of all this we expect Q2 GDP to decline 50%.  However, as workers gradually return to work GDP began to climb again in May.  Clearly checks for the $2.5 trillion stimulus plan have bolstered consumer income.  At the same time the Fed is providing $2.3 trillion of credit to make sure that the credit markets are able to access whatever funds they may require to get the economy back on track.  For this reason, we expect GDP to rebound by 45% in the third quarter.  Once we get to the fourth quarter and into next year, the economy that emerges from recession will not look at all like the economy that went into it.  We believe that technology will continue to help keep the economy growing at about a 5.4% rate in 2021.

Stephen Slifer

NumberNomics

Charleston, SC