Three key mid-June measures of the health, well-being, and near-term prospects for home building’s essential businesses clocked in as strong positives, a green light builders welcome as a break from a stressful, uncertain recent past.
One, builder confidence retraced its way to consensus-beating positive ground after a free fall in April and May. As measured by the NAHB/Wells Fargo Housing Market Index, more builders are optimistic about the near and far outlook than are negative.
Two, builders took down more capital in the form of acquisition, development, and construction loans in first quarter 2020 than a year earlier. This metric reflects both builder sentiment about demand momentum, and an ever-so-slight easing of credit among traditional bank lenders for residential projects. Willingness and ability to take on more financial risk will be a necessary role-player for a housing-led economic stabilization and recovery period ahead.
Three, housing starts and residential building permits are tracking ahead of expectations. NAHB chief economist Robert Dietz zeroed in particularly on permits in the May U.S. Census/HUD data release, detecting a “turning point for the market.”
Considering where each of these yardsticks of housing’s vitality and outlook might have been when we time-travel back two to three months, these reports shine bright as a growing pool of evidence that housing may serve as the critical link to a broader economic way out of the COVID-19 shock to global dynamics and balances.
The big questions hanging over summer 2020 take shape around two totally obscured, menacing forces of risk.
One known unknown concerns the capacity of Uncle Sam as a proxy for the economy itself. Using all the heft and monetary tools at its disposal, can the U.S. government and its central bank shoulder the kind of damage the COVID-19 pandemic triggered as it spread around the globe? The stop-loss initiatives have served to create a phantom economy of demand and supply. These actions steered Main Street clear of out-and-out catastrophic panic. Re-entry from the safety-net economy to household wages and consumer confidence-based supply and demand behaviors is, without doubt, one of the biggest challenges of the moment.
No less portentous is the known unknown of the novel coronavirus itself. COVID-19 has taken on a life of its own, obeying only its DNA. It spreads, it sickens, it kills. It has exacted trade-offs—livelihoods for lives—we have little experience nor training in dealing with, let alone managing with grace. Six or seven months into the COVID-19 narrative, three scenarios are almost equally plausible: 1) it will continue to wreak havoc on health and economies in waves, surges, recurrences, etc.; 2) it will be contained through the efforts of either natural biological immune defenses or the development of vaccines that can prevent or reduce the odds of infection; or 3) it will die back due to its own DNA code.
Those are the known unknowns. Then, as always, there are unknown unknowns.
Resolve, fortitude, bravery, and faith. These traits define builders we know, and we believe will propel housing’s energized willingness to bridge the safety-net economy Uncle Sam has provided to the real-world workaday economy we must reboot to survive. Builders know risk well, and its rewards. This is why we look to builders first for confidence and courage to take on the big unknowns of summer 2020.
