Deep divide among homebuilders

The usually strong relationship between NAHB homebuilder confidence and housing starts has broken down recently. That can be explained by the composition of the NAHB’s builder members, which are largely smaller private homebuilders. Unlike their larger competitors these smaller homebuilders are struggling with high financing costs and are therefore rapidly losing market share. The NAHB’s measure is therefore overstating pessimism across the homebuilder market, which supports our view that housing starts and permits will maintain their recent strength over the next few years.