Approaching buying season likely to boost sales but six-month outlook grim because of shortage of labour and approved land, reports Team IFM
New York, March 18: Builder confidence in the market for newly-built, single-family homes crawled up slightly this month in the US but remained close to a two-year low even while data released by the government on Tuesday showed mixed performance for housing starts in February. The overall reading: home sales are an area of concern.
According to industry body National Association of Home Builders, realtor confidence rose one point to 47 on the NAHB-Wells Fargo Housing Market Index (HMI) in March. Data it released on Monday showed demand for new homes was improving slightly with the onset of spring, the traditional home-selling season.
The builders’ body, however, said the outlook for the next six months was not too bright because of a shortage of skilled workers, ready-to-build land and rising building materials costs.
“The March HMI mirrors last month’s sentiment, as builders continued to be affected by poor weather and difficulties in finding lots and labor,” said NAHB Chairman Kevin Kelly, a home builder and developer from Delaware.
“This corroborates reports of decline in orders from some of the big home builders recently,” Jennifer Lee, senior economist at BMO Capital Markets, told online magazine MarketWatch of The Wall Street Journal.
This was disappointing as in January, despite the severe cold, new home sales had risen to a five-year high, allaying fears of a prolonged housing sector slowdown following grim forecasts by at least two sets of economists and reports of falling sales of existing homes during the month.
In keeping with the depressed sentiments in the housing sector, the US Census Bureau and the Department of Housing and Urban Development on Tuesday jointly announced slightly worse than expected housing starts statistics for February.
Housing is considered a key cog in the American economy, impacting a host of industries such as banking, the mortgage sector, raw materials, employment, construction, manufacturing and real estate. Rising purchase of new homes signifies a strong economy.
The US economy may well be on its way there, with many economists such as Jim O’Sullivan, Chief US Economist at High Frequency Economics in Valhalla, New York, projecting demand to increase. “I’m hopeful the recovery in home sales will get back on track in the next couple of months,” O’Sullivan told Bloomberg late last month.
Labour Pains
As if on cue, the NAHB-Wells Fargo HMI – the gauge of confidence among American home builders – crawled up in March but remained close to its lowest level since May 2013. In other words, realtors are still pessimistic about sales trends despite January’s healthy show.
NAHB Chairman Kelly blamed adverse weather conditions and a shortage of approved land and labour, prompting BMO Capital markets senior economist to say “this corroborates reports of decline in orders” from big home builders recently.
“Land shortages may be playing a part in this. All in, this suggests some caution on the US new home sales/starts front,” Lee told MarketWatch.
NAHB Chief Economist David Crowe explained why the housing sector was cautious. “A number of factors are raising builder concerns over meeting demand for the spring buying season,” Crowe said in a statement. “These include a shortage of buildable lots and skilled workers, rising materials prices and an extremely low inventory of new homes for sale.”
Derived from a monthly survey that NAHB has been conducting for 30 years, the NAHB-Wells Fargo HMI gauges builder perceptions of current single-family home sales and sales expectations for the next six months as “good,” “fair” or “poor”.
The survey also asks builders to rate traffic of prospective buyers as “high to very high,” “average” or “low to very low.” Scores for each component are then used to calculate a seasonally adjusted index where any number over 50 indicates that more builders view conditions as good than poor.
“The index’s components were mixed in March,” NAHB said in the statement. “The component gauging current sales conditions rose one point to 52 and the component measuring buyer traffic increased two points to 33. The component gauging sales expectations in the next six months fell one point to 53.”
Moreover, the three-month moving averages for regional HMI scores all fell in March. The Northeast dropped three points to 35, the Midwest fell three points to 53, the South posted a four-point decline to 49 and the West registered a two-point drop to 61.
Starts Mixed
Close on the heels of the NAHB statement, the US Census Bureau and the Department of Housing and Urban Development jointly announced residential construction statistics that showed mixed results for housing starts and new building permits in February, not a very upbeat scenario on the eve of the spring season.
Privately-owned housing starts in February were at a seasonally adjusted annual rate of 907,000, an official statement said.
“This is 0.2 percent below the revised January estimate of 909,000 and is 6.4 percent below the February 2013 rate of 969,000,” it said.
On the other hand, February data showed, single-family housing starts were at a rate of 583,000 or 0.3 percent above the revised January figure of 581,000. The February rate for units in buildings with five units or more was 312,000.
Privately-owned housing units authorised by building permits in February were at a seasonally adjusted annual rate of 1,018,000. This is 7.7 percent above the revised January rate of 945,000 and is 6.9 percent above the February 2013 estimate of 952,000.
But single-family authorisations were at 588,000. “This is 1.8 percent below the revised January figure of 599,000.”