Builder Focus: Winter’s fury ups the ante for builders

2014-02-08T11:45:00Z Builder Focus: Winter’s fury ups the ante for buildersMichelle Krueger Times Correspondent
February 08, 2014 11:45 am  • 

This winter’s unusually disruptive weather forced people to not only stay close to home but also indoors – impeding progress on building sites that weren’t already under roof and delaying homebuyers from looking at homes or making offers.

With lower inventories remaining a problem since the market recovery took hold over a year ago, it is predicted that builders will continue playing catch up through 2014.

The inventory of new homes stood at 171,000 units in February, a five-month supply at the current sales pace. Although this is an increase over last month, it is likely in response to the polar vortex and other abnormal weather factors that have enveloped much of the country since the beginning of the year.

Total existing-home inventories at the end of December fell 9.3 percent to 1.86 million existing homes available for sale, which represents a 4.6-month supply at the current sales pace, down from 5.1 months in November. This indicates even greater demand for new homes.

NAHB Chairman Rick Judson recently weighed in with his concerns.

“While we expect sales to gain strength in 2014, builders still face considerable constraints, including tight credit conditions for home buyers, and a limited supply of labor and buildable lots,” he said.

NAHB Chief Economist David Crowe added, "Consumers are getting used to more realistic mortgage rates, which still remain favorable on a historical basis. As household formations and pent-up demand continue to emerge, we anticipate that 2014 will be a strong year for housing."

With housing starts rising above 900,000 in 2013, new-home sales should continue to increase substantially this year, housing economists and the US Census Bureau predict more than 1 million new households per year will be formed over the next 10 years - after holding steady near 600,000 for five years, household growth picked up to almost 1 million in recent years.

In fact, based on the Census Bureau’s latest population projections and recent estimates of headship rates, demographic drivers support household growth of approximately 1.2 million a year over the remainder of the decade – similar to the rates in the 1990s as well as in the years preceding the Great Recession – and according to past history, 50 percent of new households usually buy a home.

So as one economist recently predicted, “from my perspective, the housing outlook in January 2014 looks a lot like January, 2013, portending another year of mean-reversion. In 2014, look for homebuilders to sell every home they could possibly build . . . (with) demand remaining constant throughout the year.”

As it stands now, inventory is slightly better than 2013, yet it’s still near the lowest it has been in 50 years. Builders will need to ramp up construction because the low supply means much of the demand for new homes in 2014 will be satisfied by new construction, not what’s already on the market. That means buyers will need to be prepared to wait it out or lucky enough to find available new construction that’s complete or nearly complete when they are ready to make their move.

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