Still not out of the woods: despite strong fundamentals, home builders continue to struggle.

Author:Sichelman, Lew
Position::COVER REPORT: THE PURCHASE MARKET
 
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Rick Dalton, a former executive with two home-building giants in Jacksonville, Florida, who went out on his own in 2009 at the height of the housing recession, isn't doing so well. [paragraph] Dalton has bounced around a bit since being featured several times in these pages, the last time in February 2012. He has folded his building company, bought and sold a restoration franchise, and tried his hand in the energy field. He's also worked for a company that built pre-manufactured modular plants, only to be laid off when the outfit reorganized. [paragraph] Now he's unemployed--been out of work since October. [paragraph] This, in a business in which builders are now crying for experienced workers. But then, as Dalton readily admits, he's not the right kind of worker--at least not right now. "Like the NFL," he says, "there's only one quarterback." [paragraph] Ideally, Dalton would like to be hired on as a division president, but he'd be happy as a vice president of construction, sales or even land acquisition. His experience is such that he could handle any of these tasks. But on the last two jobs he chased, he lost out to people with less experience. "One was because of money," he says. "The other because they thought I would be bored."

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But hey, this is the homebuilding business--a business of the eternally hopeful, which is about the only way someone like Dalton can look at it.

"It's been a rough five or six years," he says. "I'm trying to stay optimistic. I know something will come around and I will do a real good job."

Optimism tempered

David Crowe is optimistic, too. Not quite so much as when the National Association of Home Builders (NAHB) met in Las Vegas in February at its annual convention and exposition, the International Builders' Show. But still, fairly sanguine nonetheless.

At the convention, Crowe, NAHB's chief economist, offered up what he called "a pretty aggressive" forecast for 822,000 single-family starts, about 200,000 more than in 2013. But a month or so later, he "tempered just slightly" that prediction to 767,000 starts.

January "was a pretty lousy month," the economist told Mortgage Banking, "and we're not expecting February to be much better."

(Since sitting down with Crowe, the U.S. Census Bureau reported that housing production rose nationwide by 2.8 percent in March to a seasonally adjusted annual rate of 946,000 units. The gain was led by a 6 percent jump in single-family starts.

The numbers are "in line with our forecast of a gradually strengthening," Crowe said in a press release. "However, several uncertainties, including tight credit conditions for homebuyers and erratic job growth, are making builders cautious about getting ahead of demand.")

Nevertheless, just back from the convention, Crowe said there's "a feeling of a real turnaround. A vibrancy; you can just tell people are more engaged."

Overall, NAHB is looking for 1.1 million total starts in 2014, including 337,000 five-unit or more multifamily units. That's nearly twice as many total units as in 2010, when builders started just 586,000 single and multi-units combined, and almost three times as many as the 434,000 single-family units that were begun in 2011.

But based solely on demographic trends, "the right number," according to Crowe, is about 1.7 million total units--a number he believes builders "can get to by 2016."

So that puts 2014's production--both single-family and multifamily--at something around 71 percent of "normal" by this year's fourth quarter and 93 percent of normal by the end of 2015.

Sales, meanwhile, should reach 562,000 this year--a nearly 31 percent increase over last year's 430,000 sales, Crowe says. But again, "the right number" is about 800,000 signed and closed contracts.

Slow start

The year's rather cold start was largely weather-related. Indeed, in a late February post to members, Crowe reported that "the unusual weather across much of the United States reduced consumers' shopping and buying."

Regional data confirms that weather has slowed the market. In the weather-impacted Midwest, for example, single-family starts fell 60 percent from December 2013 to January 2014, which was 50 percent lower than single-family starts in January 2013. And though Crowe offered no hard numbers, the East, suffering from unseasonably cold temperatures, likely endured a similar fate.

Consequently, the February NAHB/Wells Fargo Housing Market Index dipped 10 points to 46 in January, falling below the 50-point threshold for the first time since May 2013. The decline is the largest in the 30-year history of the index, which is designed to take the pulse of the single-family market. The monthly survey asks builders to rank the market conditions for current sales and over the next months.

But as the weather finally clears and the spring buying season moves into full bloom, builders will find themselves facing a number of other issues--a shortage of finished lots, a lack of construction financing, a shortage of skilled labor and rising material prices.

These "are always issues," says Crowe, "but they are really starting to matter, really starting to have an impact as builders prepare for the spring selling season. They haven't been resolved,...

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