Economy Watch: Homebuilders Optimistic, Investors Nervous

Why homebuilders are more confident than they have been in years.

By Dees Stribling, Contributing Editor

More mixed messages from the economy: homebuilders seem happy, or at least more confident than they have been in years, but the U.S. industrial sector is feeling the pinch of lower energy prices and the strong dollar. Both of these indicators have some meaning for the commercial side of the real estate market. Homebuilding, since patterns in housing development presage retail and office development, even in the 21st century; and industrial production, which spurs demand for industrial space, and to some extend office space. There’s also a current wildcard in the international economy: Greece again. It’s already having the effect of drawing capital to the United States.

First the homebuilders: according to the National Association of Homebuilders on Monday, builder confidence in the market for newly built, single-family homes in June rose five points to 59 on the organization’s Housing Market Index. That’s the highest reading since September 2014 (50 being the threshold of optimism). All three index components posted solid gains for the month: current sales conditions jumped seven points to 65; sales expectations in the next six months increased six points to 69; and buyer traffic rose five points to 44. A monthly uptick doesn’t mean a positive trend, but it’s always a good sign.

By contrast, industrial production was down for the month, according to the Federal Reserve on Monday, dropping 0.2 percent in May after falling 0.5 percent in April. The decline in April was larger than previously reported, but the rates of change for previous months were generally revised higher. Manufacturing output decreased 0.2 percent in May and thus was little changed from January. In May, the index for mining moved down 0.3 percent after plunging more than 1 percent per month, on average, in the previous four months. “Mining,” in the world of economic measurement, also includes the extraction of oil and gas, and the slower rate of decrease for mining output last month was due in part (the most part) to a reduced pace of oil and gas well drilling and servicing.

And what of Greece and the euro zone? No one knows yet, which is causing uncertainty, something that investors do not like. So money is beginning to move to the United States, as money does in times of uncertainty. One measurement of this is the yield on Treasuries, which drop as demand for them goes up. Benchmark Treasury 10-year yields fell three basis points, or 0.03 percentage points, to 2.36 percent by the end of the day on Monday, according to Bloomberg Bond Trader data; last week the yield had been as high as nearly 2.5 percent.

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