Builders race to keep up with surging U.S. home demand

Building Shortfall

“The overriding driver of recovery in the housing market remains the underproduction of both single and multifamily product throughout the economic downturn and up to and including this year,” Miller, head of the third-biggest U.S. homebuilder by revenue, said on a June 25 earnings call. “This shortfall will have to be made up.”

The demand-supply gap means housing will keep adding to the four-year economic expansion. Over time, residential investment’s contribution to gross domestic product growth may expand to as much as 0.6 percentage point, Renaissance Macro’s Dutta said. Housing contributed an average of 0.1 point in the four years since the recession ended in June 2009, while GDP growth averaged about 2%.

The recovery also will be able to withstand the recent run- up in borrowing costs as credit conditions are easing, in part because rising prices make homes a more attractive asset for banks to lend against, he said.

Americans are betting it’s a good time to buy because property prices and interest rates may climb further. The proportion of consumers who consider home-selling conditions favorable is the highest since 2006, while the share saying it’s a bad time to purchase a house is the smallest in 10 years, Thomson Reuters/University of Michigan figures on consumer confidence showed in June.

California, Colorado

“Buyer traffic and sales are tremendous” in California, and “unbelievable” in Colorado, said Doug Bauer, chief executive officer of TRI Pointe Homes Inc. The Irvine, California-based company, which became publicly held in January and is partly owned by investor Barry Sternlicht, announced in June that it bought 202 lots to add communities of entry-level and move-up residences in California’s Orange and Solano counties.

“The rise in rates really hasn’t softened demand at all,” Bauer said in an interview. “In fact, it’s pushed more people into the sales office because they want to lock in” current borrowing costs.

Mortgage Rates

A 3.75% mortgage rate was an incentive when Josh Robertson decided to buy a five-bedroom house in the Atlanta suburb of Sandy Springs, Georgia, in June. The 37-year-old life insurance salesman wanted a larger home and the loan terms on this one seemed a bargain compared with the 8% rate he paid for his first purchase in 2000, or a rate “in the 6’s” when he moved to another home in 2003.

“We had good fortune that low mortgage rates gave us buying power,” and the rate was still “reasonably close” to the low, Robertson said.

Increasing demand will keep boosting property prices as inventory remains near an eight-year low. At the current sales rate, the supply of new single-family homes in May would last 4.1 months, down from 4.7 months a year earlier.

Total new home sales in May jumped to the fastest annualized pace since 2008. Permits to build one-family homes also rose to a five-year high, outpacing the rate of starts, which reflect when builders break ground.

<< Page 2 of 3 >>

Copyright 2014 Bloomberg. All rights reserved. This material may not be published, broadcast, rewritten, or redistributed.

Comments
comments powered by Disqus