Demand Tapped out?
Where the US housing market goes will be a critical input for US growth this year and beyond. Americans are famous for taking home equity loans and the construction sector can be an major tailwind.
So is demand tapped out? No.
Price is the ultimate measure of demand and the median new home sales price was up 20.1% y/y. More telling may be a long series of anecdotal reports from home builders who are struggling with supply bottlenecks and unexpected commodity price increases.
Typically, new homes are sold on spec at agreed-on prices 1-2 years before the final product is delivered. That leaves builders with all the exposure to commodity prices – namely lumber. Since prices have been flat for much of the past decade, that's usually something that can be absorbed into margins. This year though prices of lumber have quadrupled and that's left homebuilders in a bad spot.
Rather than doubling down, trying to hedge or guessing at prices, many are opting not to sell the homes until they're nearly completed. So construction is continuing to boom but the 'sales' are being pushed further into the cycle.This is an other example of how bottlenecks are making it tough to gauge just how strong the economy is.
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