The CEO of one of the largest homebuilders in the US boiled down everything you need to know about the housing market
Ryan Marshall, CEO of homebuilder Pulte Group, however, was able to lay out the state of the US housing market in one succinct quote.
"With U.S. new home sales for 2016 on track to grow in excess of 10% over last year, we believe housing demand remains on a sustained path of recovery fueled by ongoing job creation, low unemployment, a supportive interest rate environment and a limited inventory of homes," said Marshall in a press release announcing Pulte's third quarter earnings.
Let's break that down a bit.
Marshall is correct that new home sales are on track to grow by over 10% this year. In fact, single family home sales grew over 20% for June, July, and August compared to the same month in 2015.
To Marshall's job creation point, what may be even more important than na unemployment rate that is hovering at or below 5% is that wage growth and pay raises are starting to come through for American workers. This even showed up for Pulte Group, which saw new orders for their home increase 17% in the third quarter, much higher than the 11.2% expected by analysts. Thus, with a tight labor market leading to higher incomes, more people have the ability to purchase a home.
Additionally, the low inventory is indeed supporting prices and well below demand. While this may be a good thing for homebuilders like Marshall, it is also making it difficult for first-time homebuyers to find a house at an affordable house as the high demand and low supply push prices higher.
The low interest rate aspect, however, is interesting. It is true that low interest rates are making it more affordable to get a mortgage. These low mortgage rates, however, may also be dis-incentivizing people from moving from their current home, as we've noted before, keeping existing home sales a bit lower than potential and worsening the supply issue.
For new homebuilders like Marshall's Pulte Group, the low interest rates are most likely an unequivocal positive, but for homebuyers and the overall housing market low rates may be as much a curse as a blessing.
Other than that, Marshall hit the nail on the head with his assessment of the US housing market.
Pulte Group's earnings came in just a hair under expectations at $0.43 a share, versus expectations from analysts of $0.44 per share. Revenue was also nearly in line at $1.94 billion against expectations of $1.95 billion. The firm's expected backlog sits at $3.7 billion currently.