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Can the Good News on Housing Starts Last?

NOV 2, 2012 11:03am ET
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It almost seems like old times again.  Single-family housing starts spiked 11% in September from the prior month to the highest level since August 2008.  

 

Builders are starting to see more serious buyers visiting their sales offices.  And industry confidence about the outlook for housing is at its highest level since 2006 – when the home construction boom was in full swing.

 

New home sales are encouraging too. Builders have sold 285,000 newly constructed homes during the first nine months of this year, compared to 234,000 during the same period in 2011.

 

But it’s not like old times, not really.  At this phase of the housing recovery, contractors are still complaining about tight credit conditions that are affecting both homebuyers and builders, that latter of which need loans to buy land.  

 

A National Association of Home Builders survey picked up “some modest easing” in lending conditions for new single-family construction loans during the second quarter,  However, that slight improvement was offset by a tightening on new loans for land acquisition.

 

“The  concern is that, even though demand for new homes is rising, overly tight credit conditions are still constraining new building and new purchases at a time when that kind of economic activity and the job growth it generates are greatly needed,” said NAHB chairman Barry Rutenberg. 

 

NAHB economists estimate that single-family starts will jump 22% from 2011 to 528,000 starts this year.  For 2013 they’re hoping for an improvement of 26%.

 

NAHB chief economist David Crowe expected that bankers would be more willing to lend to builders this year.  “But access to credit has stagnated” during the first half of this year, he told National Mortgage News

 

The chief economist is waiting to see the results of the latest builder survey, hoping to catch a whiff of easing in the third quarter.

 

Economists at Wells Fargo Securities also expect to see big jumps in single-family housing starts this year and next.

Rising home builder confidence along with low interest rates and other factors could lead to a 30% increase in single family housing starts in 2013, according to a WFS Economics Group report.

The WFS economists are forecasting that builders will break ground on 530,000 SF homes this year and 680,000 homes in 2013.  (The WFS housing start forecast is a little ahead of the NAHB forecast but not by much.) 

Wells’ economists point to the fact that SF starts for the first nine months of this year are running 26% above the 2011 pace.

They also note in their October ‘Housing Data Wrap-Up’ report that the inventory of new homes for sale is tight and “near all-time lows.”

Meanwhile, sales of distressed properties in relation to total sales have been dropping.  “The drop in competition from foreclosures has bolstered builder confidence,” the WFS report says.

Due to his connection with Wells Fargo & Co., WFS senior economist Mark Vitner expects to see better credit conditions for builders.  “We have increased our efforts recently to lend to builders,” he told NMN

WFC announced the creation a homebuilder banking group in August that will work with builders in the East Coast, Texas and Midwest.  Bird Anderson is in charge of the new banking group. “Our dedicated banking team is ready to help satisfy our homebuilder clients’ financial needs as the market begins its recovery,” Bird said.  

Vitner said he is still confident about the WFS housing starts forecast despite the impact of Hurricane Sandy.

He called the forecast “conservative” and noted that the Northeast states do not account for a lot of new home construction activity.  He also said the forecast is based on the momentum in the housing market that has been strengthening during the second-half of the year

With the Federal Reserve determined to keep mortgage rates low, “builders should be slightly more confident about building inventory going into the key spring selling season, and builders have better access to credit today than at any time since the building boom ended,” the Oct. 29 WFS report says.

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