Much like the early appearance of this spring's first crocuses and tulips, signs of life in the long-slumbering housing market are starting to pop up. Construction economists are hesitant to say the homebuilding recovery is here to stay, because the momentum is just building and very regional in nature.
But more positive economic reports and mildly bullish action with the stocks of some publicly owned homebuilders do point toward a market on the mend. That's good news for the electrical wholesaling industry because the residential market accounts for an estimated 17% of all electrical products sold through electrical distributors, according to Electrical Wholesaling sales forecast data. As the year progresses be sure to check Electrical Wholesaling for the latest data and analysis on the following market indicators.
February data from the Department of Commerce for single-family building permits was up a solid 4.9% over January to 472,000, the eighth month in a row the number of single-family building permits, which the National Association of Home Builders (NAHB), Washington, D.C., says can be an indicator of future construction activity, have increased. February's's total building permits were up an impressive 23% YTY over Jan. 2011. Multi-family permits have kept a faster pace than single-family starts over the past year and kept up their torrid pace, clocking a 59.9% YTY increase over Jan. 2011. All four regions of the United States registered solid gains in February over January. The Western region's gains over Feb. 2011 were particularly impressive, increasing 45.4% and 22.7% for total and single-family building permits, respectively.
While nationwide housing starts edged down 1.1 percent to a seasonally adjusted annual rate of 698,000 units in February, this was still the second-best pace of new construction since Oct. 2008, following an upwardly revised 706,000-unit pace in January. “Builders are reporting increased buyer interest and are expecting demand for new homes to improve in the coming months, but continue to exercise caution regarding new projects until that interest translates into more signed sales contracts,” noted Barry Rutenberg, chairman of the National Association of Home Builders (NAHB) and a home builder from Gainesville, Fla. “This process is certainly being slowed by today's overly tight lending conditions, the difficulty of obtaining accurate appraisals on new construction and competition from distressed properties that can make it tough for prospective new-home buyers to sell an existing home.”
Added NAHB Chief Economist David Crowe, “NAHB's most recent builder surveys have shown steady improvement in builder expectations for the next six months, and (the most recent) report reflects that optimism in the permit numbers, which are up across the board and are typically the most statistically reliable data. At the same time, we believe that January's exceptionally good weather was a factor in pulling some single-family starts activity forward that might otherwise have occurred in February.”
Pending home sales
Lawrence Yun, chief economist for the National Association of Realtors (NAR), Washington, D.C., also sees some positive momentum in home sales and said in a NAR press release that it's a promising indicator going into the spring home-buying season. “The market is trending up unevenly, with record high consumer buying power and sustained job gains giving buyers the confidence they need to get into the market,” he said. “Although relatively unusual, there will be rising demand for both rental space and homeownership this year. The great suppression in household formation during the past four years was unsustainable, and a pent-up demand could burst forth from the improving economy.”
He added in another press release that realtors are seeing the continuation of an uneven but higher sales pattern. “The spring home buying season looks bright because of an elevated level of contract offers so far this year,” he said. “If activity is sustained near present levels, existing-home sales will see their best performance in five years. Based on all of the factors in the current market, that's what we're expecting with sales rising 7 to 10 percent in 2012.”
Stock prices of publicly-held homebuilders
You don't need to be a Wall Street whiz-kid to know that investing in homebuilders' stocks was a pretty dicey situation over the past few years. But since the beginning of 2012, many of these stocks have offered more-than-respectable returns that, while they won't make investors think they are back to the glory days during the 2005-2007 housing boom, are still up well over 10%. The homebuilders currently enjoying the biggest increases in their stock prices since the beginning of this year are Hovnanian Enterprises (+60%); KB Home (+31%); M.D.C. Holdings (+47.2%); and Lennar Corp. (+37.5%). Check out the stock chart on page 16 for information on other publicly held homebuilders.
It's not all good news in the housing market. An article last month in the Wall Street Journal said homeowners now have an estimated $715 billion in “underwater” mortgages where the loan is larger than the value of the residential property, pushing the homeowner into a negative-equity investment. The article said data from CoreLogic, a mortgage-data firm, shows 11.1 million homeowners had an underwater mortgage in the fourth quarter — 22.8% of all residential properties with a mortgage. The share has not come down much since the recovery started in 2009, according to the article. Many housing economists say until house prices increase and more homeowners can make money on the sales of their homes, negative equity will tamp down any dramatic recovery in housing.
A posting on www.investopedia.com by Matthew McCall in reaction to recent NAR data on pending home sales did a nice job summarizing the current situation in the housing market. “It's true the number of homes sold in 2011 is still well below what many experts believe is considered a healthy home market; the good news is that the trend is improving. This bottoming pattern is what I will call the bottom of the national housing market. Or at worst, a level at which the downside is limited and the upside outweighs the downside risk.”