The housing market continues its bumpy ride toward full recovery with more lurches, twists and turns than a roller coaster at the state fair.
As the National Association of Home Builders reported in September, underlying market fundamentals are mixed, though generally moving in the right direction. Housing starts underperformed compared to the overall NAHB/Wells Fargo Housing Market Index last month, but many experts appeared unconcerned.
That same disconnect occurred in 1991, when builders’ sentiment doubled in four months while single-family starts rose only by one-third. The current Housing Market Index is about 50 percent greater than last year’s, while single-family housing starts are only 15 percent ahead for the same time period. If history repeats itself, industry sources believe housing starts and builder sentiment will eventually reach a balance.
Despite their apparent confidence, builders across the country face several challenges that are keeping their enthusiasm in check. Labor and lot availability, coupled with credit and building materials prices, are the biggest concerns. A recent NAHB survey indicates nearly 60 percent of builders rated the supply of lots in their markets as low or very low, up from 43 percent in 2012. Furthermore, more than 100,000 construction industry jobs nationwide have been vacant for six of the last seven months, the NAHB reports.
Nevertheless, housing construction continues its nationwide expansion. The Census and HUD reported single-family housing starts increased by 7 percent in August, with all four Census regions showing improvement. The West, with a 17.5 percent increase, led the pack. The South, with a 2.3 percent increase, anchored the opposite end of the spectrum. The NAHB/First American Improving Markets Index reported 291 improving metro areas in September.
With August single-family permits reaching a 627,000 pace — the highest since May 2008 — analysts remain confident that more growth is on the way, particularly with the help of pent-up housing demand.
“The solid single-family starts and permits report provides additional evidence of the slow but steady improvement in single-family owner-occupied construction that began in earnest in early 2012,” states the NAHB’s Eye on the Economy report.
Although the seasonally adjusted construction rate has increased 36 percent since January 2012, single-family starts remain at less than half a normal rate of 1.4 to 1.5 million per year. NAHB is forecasting a 17 percent increase in single-family construction in 2013 over 2012 and a more robust 31 percent in 2014.
Andy Warren is President of Maracay Homes, the Arizona subsidiary of the Weyerhaeuser Real Estate Company. He serves on the Board of Directors for the Home Builders Association of Central Arizona and Greater Phoenix Leadership; as well as the Board of Directors and as an Executive Committee member with the Greater Phoenix Economic Council. He is also an active member of the Urban Land Institute.