Yahoo Finance takes a moderately deep dive into the home building sector, parsing the numbers surrounding the Zacks Building Products – Home Builders index. Here are three major themes it outlines:
- The U.S. housing industry has been reaping benefits from the U.S. Federal Reserve’s dovish monetary stance. Lower mortgage rates have been spurring demand in this rate-sensitive housing market. This, along with a stable economy, rising disposable income and favorable demographic changes are continuing to support demand.
- Raw material prices — which have been increasing over the past few months due to the initial effects of tariffs on items like steel, aluminum and softwood lumber — are now decreasing. This should provide a meaningful boost to margins in the near term. According to an Associated Builders and Contractors’ analysis of information provided by the U.S. Bureau of Labor Statistics, construction material prices dropped 2.2% on a yearly basis in October 2019.
- However, despite the fact that declining mortgage rates and lower housing prices have been driving traffic after a tough second half of 2018, the conversion of that traffic into signing of purchase contracts slowed down in the high-end housing market. Softness in home purchases in this particular segment, in response to affordability challenges and general market uncertainty, are impacting the order flow of luxury home builders like Toll Brothers. Again, shortage of skilled labor is a pressing concern. Home builders continue to be cautiously optimistic about the industry’s prospects owing to rising land and labor costs. Again, rising incentives to drive sales are eating into margins.
