After a hurricane-induced dip, confidence among U.S. homebuilders increased more than expected in October.
A monthly sentiment index from the National Association of Home Builders rose 4 points to 68, the highest level since May of this year. A reading above 50 is considered positive sentiment. The index stood at 63 in October 2016.
"This month's report shows that homebuilders are rebounding from the initial shock of the hurricanes," said NAHB Chairman Granger MacDonald, a homebuilder and developer from Kerrville, Texas. "However, builders need to be mindful of long-term repercussions from the storms, such as intensified material price increases and labor shortages."
Homebuilders have cited the labor shortage nationwide as the greatest barrier to productivity. In Houston, thousands of homes were flooded during Hurricane Harvey, and just a week after the water receded some contractors said they already had a waiting list of over a year to do repairs. For homes completely destroyed, the list was even longer.
The number of homes destroyed in the hurricane is higher than the total number of regular new home permits estimated for Houston this year.
The commodity futures price for lumber is now up 21 percent from the end of August, when Harvey struck, and continues to rise. The fires in Northern California, which have destroyed more than 6,000 structures already, are only adding to the lumber price spike and the labor shortage.
In addition to the disasters, builders are also seeing more demand stemming from the very short supply of existing homes for sale. Of the Home Builders index's three components, current sales conditions rose five points to 75. Sales expectations over the next six months also rose five points to 78. The component measuring buyer traffic rose just one point to 48 and is the only measure in negative territory.
"It is encouraging to see builder confidence return to the high 60s levels we saw in the spring and summer," said NAHB Chief Economist Robert Dietz. "With a tight inventory of existing homes and promising growth in household formation, we can expect the new home market continue to strengthen at a modest rate in the months ahead."
Regionally, on a three-month running average, homebuilder sentiment in the South rose two points to 68 and in the Northeast rose one point to 50. Sentiment in the West and Midwest remained unchanged, at 77 and 63 respectively.