From a small northwestern observatory…

The NAHB / Wells Fargo Homebuilder Confidence Index slid from 68 to 60 in a report  just released this morning.  This index is a composite of current builder expectations, buyer traffic, and 6-month sales expectations.   While a reading about 50 is considered positive, this drop — to its lowest level since 2016 — is widely considered a bearish indicator.  The monthly drop is the greatest since 2014.

This announcement contributed to a down stock market open this morning, and with good reason.  Most investors do not appreciate the degree to which homebuilding permeates the broader economy, in terms of both direct expenditures (building supplies, equipment) and secondary and tertiary effects (payrolls, land investments, permitting and fees, insurance — the list goes on). Economists estimate that homebuilding contributes about 15% to 18% to overall GDP.

New home construction tends to be skewed toward first time buyers, and the shortages of such buyers has plagued the market for some time now.  This signal suggests demand is seriously worsening.

On the positive front, commercial real estate looks pretty good this morning.  My sister blog, ACCRE.COM, will have some commentary on that later this week.