Joe Chamberlain says he can’t build homes fast enough to keep up with demand. The founder of Caprock Custom Construction in Rockwall, Texas, has yet to break ground on any of the three houses he sold in May and June.
That’s “an excellent position for a builder to be in,” said Chamberlain, who already has three homes under construction and is just starting work on another. “It ensures we’ll stay busy for a long time and make a profit.”
Almost 36 percent of all U.S. new homes sold in May weren’t yet under construction, close to a seven-year high and signaling sustained strength in homebuilding as companies try to catch up.
That in turn will trigger purchases of everything from cement and lumber to furniture and appliances, bolstering hiring and economic growth, economist Neil Dutta predicts.
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“There’s clearly more housing-starts activity in the pipeline,” said Dutta, head of U.S. economics at Renaissance Macro Research in New York. “The economic outlook is getting better, and there’s more household formation. With demand rising, production is going to follow.”
Of the 45,000 new houses sold in May, construction hadn’t yet begun for 16,000, according to Commerce Department data. The share of yet-to-be-built dwellings was up from 26 percent a year ago and from a recession low of 14 percent in September 2008.
The outlook for housing has helped drive the Standard & Poor’s Homebuilding Index up 29 percent in the past year, outpacing the S&P 500 Index’s 18 percent gain.
Since 2008, U.S. residential construction has averaged fewer than 700,000 single- and multifamily units per year, of which about 300,000 a year were to replace obsolescent dwellings, according to Stuart Miller, chief executive of Miami-based Lennar.
Even a jump to about 950,000 new dwellings in 2013, “a significantly stronger year of building activity,” would still be below the nation’s need of 1.2 million to 1.5 million a year, he said.
“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 0.1 point in the four years since the recession ended in June 2009, while GDP growth averaged about 2 percent.
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.
“Buyer traffic and sales are tremendous” in California, and “unbelievable” in Colorado, said Doug Bauer, chief executive of TRI Pointe Homes.
The Irvine, Calif.-based company, which became publicly held in January and is partly owned by investor Barry Sternlicht, announced in June it had 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 fact, it’s pushed more people into the sales office because they want to lock in” current borrowing costs.
Still, builders are frustrated by obstacles including limited access to capital, said David Crowe, chief economist at the National Association of Home Builders in Washington.
Land, labor, and materials also are in short supply, reflecting difficulties in recouping capacity that was slashed during the recession.
“The constraints will gradually work themselves out,” Crowe said.