What makes a homebuilder confident? Well, if it is the ability to continuously add inventory to an already oversaturated housing market, then I am pretty satisfied with the latest homebuilder confidence report.
Thanks in part to the expiration of a tax credit for first-time homebuyers in April, the National Association of Home Builders' monthly confidence reading dropped from a reading of 23 in May to 17 in June. A reading of higher than 50 is considered a strong indication that this group of more than 300 homebuilders believes the sales environment is strong.
At the same time, per Dow Jones Newswires, the dramatic decrease in the number of housing permit applications in April from the previous month shows the weakening spending power of the American consumer. Yet "the builders' group hopes low prices and mortgage rates, along with job market improvement, help the housing market later this year."
But before you start rooting for the homebuilders, know this. While less homebuilding may initially hurt companies such as Lennar (NYSE: LEN), Toll Brothers (NYSE: TOL), and Pulte Homes (NYSE: PHM), among others, it may help put a floor in home prices that have put a great weight on the economy. Many investors may look at the results of this survey as a sign of continuing deterioration in the housing market, but it may prove to be just the opposite.
Does the housing market really need any new inventory? Let us know what you think in the comments box below.
