Builder confidence fell slightly in January, but USMCA trading is likely to be a boon for the industry

<pre><pre>Builder confidence fell slightly in January, but USMCA trading is likely to be a boon for the industry

The payment: The builders started 2020 in a pretty good mood.

The monthly confidence index of the National Association of Home Builders fell in January from 76 in the previous month by one point to 75, the trading group said on Thursday. The number for the previous month was the highest index value since June 1999.

Index values ​​above 50 indicate that confidence is improving, while a value below this threshold would signal the opposite.

What happened: The builders' confidence rose in the course of 2019. A year ago, the confidence index was much lower at 58 points.

The indicator for expectations of future sales in the next six months remained unchanged at 79 points. The current family home sales indicator fell three points to 81, while the index, which measures sentiment in terms of potential buyer traffic, rose one point to 58.

Regionally, the mood of building owners improved in the west (plus four points) and northeast (plus three points) per month, but remained the same in the south and deteriorated in the Midwest (minus seven points).

Continue reading: Rents are cheaper than buying in almost 50% of these housing markets – and they usually have one thing in common

Big picture: The NAHB index is an indicator of potential future construction activity. In line with the increasing confidence of housing builders, new housing construction has increased in recent months due to low mortgage rates and high demand from buyers.

Inactivity in the past of builders could drive the confidence index up for some time. In the 2010s, builders started building just 6.8 million new homes, a reflection of the success the industry had during the Great Recession, according to the National Association of Home Builders. That is much less than in previous decades. In comparison, 12.3 million single-family houses were built in the 2000s, while 11 million new houses were built in the 1990s.

The lack of new construction in recent years has led to a significant housing shortage across the country, which has pushed property prices up and made home buying unattainable for many Americans.

While the lack of homes is an opportunity for home builders, there is headwind. Land costs have increased, as has the cost of wood and labor. As a result, the profit margins for builders have widened, and many have responded by building high-quality homes instead of the most sought-after entry-level properties.

However, the signing of the US, Mexico, and Canada trade agreement could alleviate some of these cost problems for builders, according to the NAHB, as many of the supplies they use are imported from Canada and Mexico.

See also: How a Trump victory in 2020 could change real estate markets across America

What you say: "The real estate market has consolidated, which is unusual in a later cyclical world," said Robert Kavcic, senior economist at BMO Capital Markets, and economist Carl Campus in a research note.

Market reaction: DR. Horton Inc.

DHI, + 0.20%

, Lennar Corp.

LEN, -0.55%

and Pulte Group

PHM, + 0.44%

were all in morning trading before the data release.

The Dow Jones Industrial Average

DJIA, + 0.54%

and the S & P 500

SPX, + 0.53%

Also on Thursday morning, both were a reflection of investor optimism after the first phase of the US-China trade agreement was signed.