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Sunday, August 1, 2021

Falling new home orders underscore supply constraints in US economy

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D.R. Horton said orders fell by 16.5%

D.R. Horton said orders fell by 16.5%

D.R. Horton, the largest US homebuilder, reported strong earnings today but shares are down 5% after it said sales orders fell by 16.5% in the quarter.

Volatility in lumber prices, labor shortages and buyer skittishness are likely behind the dip.

I tend to think the market is overreacting. The company can sell every home that it builds at great — near record — margins. I think they’re simply waiting until later in the building cycle to sell.

If you have an asset that’s appreciating, you hold onto it a bit longer. Especially when the cost of capital is as low as it’s ever been. That’s classic inflationary behavior.

I wonder if similar sentiment plays out in the rest of the economy as bottlenecks build. The signals from real-time data might skew just how strong underlying demand is.

On housing specifically, we get existing home sales for June at the top of the hour.  The consensus is 5.90m after 5.8m in May. Here is an argument for while it will be soft.

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