Housing Market Hammers Pessimists

If you are still standing on the sidelines and are uncertain if the recovery in the residential market is for real, in many local markets you may get run over by homebuilders on their way to break ground in new housing developments.

Two key leading indicators for the housing industry, the National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index (HMI) and building permit data from the U.S. Census Bureau (see pages 4 and 5), point to a homebuilding industry that had a heckuva year in 2013 and has every reason to have high hopes for 2014. According to the HMI, builder confidence in the market for newly built, single-family homes improved four points to a 58 points reading for December. This gain reflected improvement in all three index components — current sales conditions, sales expectations and traffic of prospective buyers.

“The recent spike in mortgage interest rates has not deterred consumers as rates are still near historically low levels,” said NAHB Chief Economist David Crowe.  “Following a two-month pause in the index, this uptick is due in part to release of the pent-up demand caused by the uncertainty generated by the October government shutdown. We continue to look for a gradual improvement in the housing recovery in the year ahead.”

Building permits are a good leading indicator for the housing industry because they offer advance insight into builders’ plans for the future. Homebuilders don’t purchase a building permit unless they plan to build a house. In NAHB’s Eye on the Economy blog, the association said even though November’s total building permits (single-family and multi-family) were down 3.1% from the 1,039,000 permits builders pulled in October — a five-year high — they remained over 1 million for the third month in 2013. NAHB said single-family permits were up 2.1% to 634,000, the highest since April 2008, and that multi-family permits were down 10.8% to 373,000 after reaching their highest point in six years in October.

Building permit data for individual metropolitan statistical areas (MSAs) offers some additional insight into how fast some local markets are recovering from the historic lows of the recent recession. The year-to-date data for single-family building permits through October shows that more than 50 MSAs are enjoying year-to-date (YTD) growth compared to 2012 of better than the overall national increase of 22%. The ten MSAs enjoying the highest percent increase in single-family building permits YTD through October are: Deltona-Daytona Beach-Ormond Beach FL (+92%); Bend OR (+73%); Reno-Sparks NV (+70%); Atlanta-Sandy Springs-Marietta GA (+62%); Los Angeles-Long Beach-Santa Ana CA (+61%); Riverside-San Bernardino-Ontario CA (+59%); Sarasota-Bradenton-Venice FL (+48%); Lakeland FL (+47%); and New York-Northern New Jersey-Long Island NY-NJ-PA (+47%).

Several states and MSAs dominate the housing data for single-family starts. Of the top 25 MSAs for single-family permits, the four largest housing markets in Texas — Houston, Dallas, Austin and San Antonio — have accounted for more than 60,000 building permits. That’s well ahead of Florida, which had an impressive 25,750 single-family building permits pulled YTD in its largest MSAs — Orlando, Tampa-St. Petersburg-Clearwater Tampa, Miami-Fort Lauderdale-Miami Beach and Jacksonville.  Three cities topped 10,000 single-permits on their own: the Atlanta, Washington, D.C. and Phoenix metropolitan areas. Two other regions with solid building activity were the MSAs for Los Angeles-Long Beach-Santa Ana and Riverside-San Bernardino-Ontario CA, which had 11.900 building permits year-to-date, and North Carolina’s Charlotte-Gastonia-Concord and Raleigh-Cary MSAs, with 14,450 single-family permits YTD.