Even though home construction companies continued to falter in overall earnings in 2011, there were signs over the last few months of improvement for homebuilders in the near future.
Residential construction ended 2011 with single-family housing starts rising in December for a third straight month at 4.4%, according to government figures. The Census Bureau reported that single-family housing starts rose to a 470,000 seasonally adjusted annual rate in December from a 450,000 rate in November.
Meanwhile, the National Association of Home Builders/Wells Fargo Housing Market Index found that builder confidence has risen four months in a row through January. The survey, which gauges builder perceptions of current single-family home sales and sales expectations for the next six months as “good,” “fair” or “poor”, reached its highest point since June of 2007 with a score of 25. Sales expectations in the next six months also rose three points to 29—its highest point since September 2009.
Overall, single-family starts totaled 428,600 units in 2011, a 9% gain from 2010, the Census Bureau reported.
“Builders are seeing greater interest among potential buyers as employment and consumer confidence slowly improve in a growing number of markets, and this has helped to move the confidence gauge up from near-historic lows in the first half of 2011,” said David Crowe, chief economist for NAHB.
Another component of the NAHB survey asks builders to rate traffic of prospective buyers as “high to very high,” “average” or “low to very low.” This category also saw a three point increase to a rating of 21, the highest point since June 2007 when the housing market started to collapse.
The HMI posted gains in all four regions in January, including a nine-point gain to 23 in the Northeast, a one-point gain to 24 in the Midwest, a two-point gain to 27 in the South and a five-point gain to 21 in the West.
“This good news comes on the heels of several months of gains in single-family housing starts and sales, and is yet another indication of the gradual but steady improvement that is beginning to take hold in an increasing number of housing markets nationwide,” said National Association of Home Builders Chief Economist David Crowe. “Policymakers must now take every precaution to avoid derailing this nascent recovery.”
Even though builders are more confident that future homebuyers are interested in construction projects, any score below 50 signals that market conditions are still poor.
Crowe said builders are still concerned about potential clients being unable to qualify for an affordable mortgage, appraisals coming through below construction cost, and the continuing flow of foreclosed properties hitting the market.
Lennar Corporation, one of the nation’s largest homebuilders based in Miami, reported fourth quarter net earnings of $30.3 million, which is $1.7 million less than the same quarter last year. For the fiscal year, which ended on Nov. 30, 2011, the company earned $92.2 million, much lower than the $95.3 million made in 2010.
However, company revenues were up in the fourth quarter 11% to $952.7 million, an 11% increase from $860.1 million a year ago. Lennar said the main reason for higher revenues compared to 2010 was due to a 9% increase in the number of home deliveries to 3,375 through the end of November, as well as new orders going up by 20% to 3,027.
Company revenue for the year was $3.1 billion for the year, 1% more than fiscal 2010.
“As we come to the end of 2011 and head into 2012, we have seen the market start to stabilize, driven by a combination of low home prices and low interest rates, making the decision to purchase a new home more attractive, compared to the heated rental market,” said Stuart Miller, CEO of Lennar Corporation. “Despite operating in a challenging real estate market, we achieved profitability in all of our business segments.”
