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Builder confidence on an upswing, but construction lags

August 15, 2013|By Alejandro Lazo
  • A home under construction in Rancho Santa Fe, Calif.
A home under construction in Rancho Santa Fe, Calif. (Sam Hodgson / Bloomberg )

During this housing recovery, emotions have not led to action for home builders. Even as builder confidence in sales conditions has spiked, new home construction has remained at a lackluster level.

The latest evidence of this divergence came Thursday, with news that home-builder confidence rose in August to hit a nearly eight-year high. The increase in enthusiasm was due to confidence in sales expectations and current sales conditions. The rise indicates that builders are feeling increasingly comfortable about the industry. Nevertheless, new housing starts are lagging behind the sharp increases in confidence.

Southern California's housing recovery: An interactive map

Single-family housing starts in June -- the latest data available -- came in at a seasonally adjusted annual rate of 591,000 units, essentially flat from the prior month. That puts builders on track to construct very few units compared to historical standards.

“The pickup in starts hasn’t been all that remarkable, the market is still at very low levels and it is at low levels everywhere,” IHS Global Insight economist Patrick Newport noted.

It’s not exactly clear why this disconnect between emotion and action exists. Builders have raised concern about their ability to access credit markets. They cite a shortage of buildable lots. Costs have also remained relatively high while prices are still low compared with what builders were able to charge for their products during the boom years. Finding skilled construction workers has been tough, as many have left the building trades altogether.

The activity surrounding new home building has traditionally been one of the biggest lifts for the U.S. economy as it exits a recession. So getting  builders excited enough to build and ensuring that there will be enough demand for those homes remains a linchpin for the economic recovery. On Friday, the housing industry will get the latest update on new home starts when July figures are released.

As for the level of confidence, the National Assn. of Home Builders’ housing market index rose three points to 59 in August, the strongest reading since January 2006. That index is based on surveys of builders nationally.  Any reading over 50 means that more builders view sales conditions favorably than not. The measure crossed the 50-point threshold in June for the first time since the downturn started in 2006.

Builders in August  were most cheered by future sales expectations, but were also positive about current sales activity, according to the index breakdown. Traffic through model homes by prospective buyers was flat, builders reported.

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