For the first time in seven years, most U.S. homebuilders are optimistic about home sales, a sign that construction could drive stronger economic growth in coming months.
The National Association of Home Builders/Wells Fargo builder sentiment index released Monday leaped to 52 this month from 44 in May. It was the largest monthly increase since 2002.
A reading above 50 indicates more builders view sales conditions as good, rather than poor. The index hasn’t been that high since April 2006, just before the housing market collapsed.
Measures of customer traffic, current sales conditions and builders’ outlook for single-family home sales over the next six months also soared to their highest levels in seven years.
Steady hiring and low mortgage rates have encouraged more people to buy homes. The increased demand, along with a tight supply of homes for sale, has pushed home prices higher. That’s made builders more optimistic about the market for newly built homes, leading to more construction and jobs.
In April, applications for new home construction reached a five-year peak. And sales of new homes rose to a seasonally adjusted rate of 454,000, nearly matching the fastest pace since July 2008. Sales are still below the 700,000 pace considered healthy by most economists. But they have risen 29 percent in the past year.
Local building indicators are spiking upward, too, though they haven’t returned to pre-bust levels.
Area builders closed on 650 units in April, up 85.7 percent from sales in April 2012, according to research firm SalesTraq. The market’s 2,240 closings from January through April were 86.8 percent ahead of the pace a year ago. The average number of sales per subdivision surged 170.6 percent, to 4.3 closings a month. And new-home permits were up 52.1 percent year over year from January to April, at 2,385 permits pulled.
The improvements show at Storybook Homes. The Las Vegas builder sold 50 homes in 2008, and around 45 homes in 2012. But last summer, company officials saw improvements coming, so they began buying up land for homes, as well as apartment and retail projects to diversify the company’s portfolio. Storybook is on track to close on 100 homes in 2013, said Principal Wayne Laska.
“The market’s just completely changed in the last six or seven months,” Laska said. “We were in a good position and had all of our guns loaded. We were ready to build houses, and the buyers were there. So we’re feeling really good.”
Nat Hodgson, executive director of the Southern Nevada Home Builders Association, said the market’s mini boom has its roots in April 2012. That’s when building permits doubled amid a supply crunch, as foreclosures stalled and builders ran out of standing inventory.
“We’re very encouraged by the local economy. We’re no longer looking down at the bottom. We’re looking up to get out of the hole we dug ourselves into,” Hodgson said.
It’s a pretty deep hole: The market sold about 15,000 homes a year in the early 1990s, and more than 35,000 homes at its 2006 peak. Today, the building community hopes to get to 8,000 this year, Hodgson said. Still, that would be more than double the 3,000 or so annual closings during the recession’s depths.
“We’re not jumping up and down and saying this market is the greatest thing since sliced bread, but the fact that we’ve bounced off of our bottom gives us hope,” Hodgson said. “For a number of years, builders were buying dirt, building houses and selling them for less than their costs. As of this minute, they’re able to make a profit.”
Nationally, single-family home construction slowed in April to a seasonally adjusted annual rate of 610,000 homes, but that’s expected to grow sharply in coming months.
“We are forecasting a considerable acceleration,” said Greg Bird, associate economist with Moody’s Analytics, which projects that housing starts on single-family homes will reach an annual rate of 1.6 million by the end of 2014.
Hodgson said industry forecasts call for sustained local improvements as well. It’s reasonable to expect the market to sell about 12,000 homes a year, up a third from 2013’s pace. Expect gains of 500 to 1,000 units a year until local sales reach that level.
And Laska said he thinks the market will continue to improve at least until the local median resale price of around $150,000 catches up to the national median of $190,000. Population flight from California, where taxes are rising, and continued local job growth of around 2 percent a year should give the market a lift as well, Laska said.
But land is an issue in Las Vegas. Prices have doubled in the last nine months, and that makes it harder to find acreage and keep home prices affordable, Hodgson said. At Storybook, prices are rising 2 percent to 3 percent a month, in lockstep with gains in resale prices, Laska said.
Add to pricier land some uncertainty about the economy’s future, and builders are adding a good dose of caution to their optimism. Consider Storybook: Laska said he could easily sell 150 homes this year, but he’d have to add five or six workers to his 13-employee staff to handle the business. And that’s a no-go given today’s economic uncertainty, plus the painful memories the recession left behind.
“We went through such a horrific time in 2008 and 2009, so we have no interest in growing exponentially,” Laska said. “We’ve decided to keep our home-building operations to a very manageable level, and to diversify into other asset classes. We don’t want to be so concentrated in home-building that when the next downturn comes, we get crushed.”
Review-Journal writer Jennifer Robison contributed to this report.