Advertisement

NAHB CEO: What's happening in housing right now is unprecedented

National Association of Home Builders CEO Jerry Howard joins Yahoo Finance’s Zack Guzman to break down the latest on the housing market, as homebuilder sentiment sets another record high in October.

Video Transcript

ZACK GUZMAN: That blowout report we got in terms of homebuilder sentiment here, setting a record for the second month in a row, jumping to a reading of 85 in October on the NAHB Wells Fargo Housing Market Index. Keep in mind, anything above 50 is positive. And the reading in October last year was 71. So that's a 14-point jump year over year.

All three components in that report of the index either set records or matched their highest readings we've seen. Current sales up two points to 90, sales expectations in the next six months up three points to 88, and buyer traffic unchanged at 74, which, just again, it goes to show the strength in the housing recovery and builder sentiment that we've seen here, truly one of those rare standout V-shaped recoveries when you look at it.

ADVERTISEMENT

So here to join us for more on that is the CEO of NAHB, Jerry Howard. And Jerry, appreciate you coming back on. Your reaction to the report here in showing how much strength we are seeing in this recovery in the housing space.

JERRY HOWARD: Well, it's absolutely amazing. I mean, we set the record last month. And now to set it again is obviously something we hadn't expected, and it's unprecedented. The only thing we can attribute it to, Zack, is that, number one, interest rates are really, really low right now.

And number two, in the wake of the pandemic, the civil unrest, the talk of urban areas increasing taxes, the notion of owning a home in the suburbs, the exurbs, and even in rural areas, is really taking off with the American consumer.

You know, I'm talking to builders in Montana who were getting calls from clients that want to build a house, and they're moving there from Southern California. Builders in northern Vermont getting calls from people in New York City and Boston. It's absolutely something we've never seen before, but it's certainly buoying the market and keeping us leading the economic recovery.

ZACK GUZMAN: Yeah, I mean, if you think about the Fed keeping interest rates low, I mean, we've expected that. That's the expectation that that's going to be the case for a few years to come here.

But in the other boost you're describing, this exodus from the suburbs-- or from cities to suburbs in places that you're describing there, like Montana where there's clearly a lot of space to build these houses, how long do you see that maintaining here in terms of that flight to more rural spots and what that could mean for builder sentiment years down the road?

JERRY HOWARD: You know, people are assessing that right now. And I think one of the most important components to look at is the ability of white collar workers, the ones that make up all the offices in those big highrises in the cities, to work virtually and work from pretty much anywhere they want.

You know, I know of one guy in Idaho who built a house for an investment banker in Los Angeles who will just go to LA once or twice a week if he has to. Otherwise, stay at home. And I think the way that the white collar economy has adapted to working from home is really, really going to influence that question.

I think it's probably going to be a longer term trend than just pandemic related to. I think the technology is going to be a huge influencer here.

ZACK GUZMAN: Yeah, it does seem to be a trend that hasn't let up, as we see more and more companies out there saying they're fine with workers staying working from home here and delaying a return, if there even is one, to the office.

But when you talk about regional breakdowns here-- this is something we discussed last month when we got that report, too. You were talking about the capacity for the Northeast to continue this run. They saw the highest increase in terms of points rising six points to 82, the Midwest up three points to 35, the South, three points to 82, the West enjoying a five-point rally to 90 here on the index reading.

But what do you make of the regional strength that we are still seeing play out, as maybe as the Northeast opens up, more people out there looking at homes. How do you see that playing out moving forward?

JERRY HOWARD: Well, again, the Northeast is probably the most densely populated area. Therefore, I think you're going to see a continuation of a flight from the cities led by, you know, the notion that, you know, a home now is-- the idea of owning a home is reverting back to what it's been historically in our country. People look at it as a place for security. They look at it as a place to spend time with their family.

And if there's going to be more quarantines, another spike in the virus, people don't want to spend it cooped up. So I think that influences the Northeast. In the West, you have, you know, the big cities, San Francisco and Los Angeles, which were unaffordable to begin with. Portland and Seattle more affordable, but civil unrest.

And so some of the other areas in the West, northern Nevada, Idaho, Montana, are really picking up. I think this is a reflection of society more than it is of economics right now.

ZACK GUZMAN: And lastly, I mean, when we talk about the economics of this surge in demand, I mean, talk to me about what costs are looking like for the homebuilders here dealing with all this, because we've talked about supplies, getting hit. There were a lot of issues earlier in the pandemic when we're talking about labor struggles as well. So what does that look like now when you talk to homebuilders grappling with that?

JERRY HOWARD: Yeah, the headwinds have always been the cost of building materials and the cost of labor. Lumber prices rose 170% from April to early September. Thankfully, the timber industry is doing more production now, and lumber prices are coming down. We think that's a very good sign for our economic growth. Other material costs are still marginally high, as there have been some disruptions in the supply chains.

And then labor, we were in a labor shortage before the pandemic. We're still in a labor shortage. But if there is a silver lining there, it's a lot of people see jobs in our industry are secure. Our industry was named as an essential industry. Our businesses are going strong, where so many other areas, unfortunately, restaurants, hotels, not hiring people back right away.

And so we are starting to get some entry into construction from some of those people who were looking for work. That could help in the near term. We still have to do a lot of national and localized training. But that's what we've got going on right now.