Home Construction: An Industry Rebounding with Optimism

The home building niche and its associated businesses have been instrumental in bringing about numerous cycles of economic recovery. This has helped the nation to recover from the aftermath of the economic crisis. Today, the home construction industry is actively addressing the renewed interest in home ownership and long term home rentals.

It Could Have Been Better

The number of homes built for occupancy and rentals grew steadily during 2013. This positive outlook is expected to sustain through 2014. As impressive as this might seem, it doesn’t reflect the potential of the industry. Home builders usually take upon 1.7 million homes during a year that is not hammered by recessionary cycles. Addressing the demands of younger, smaller families and home rental-seekers, the industry could have done much better. The resurgence has been impaired by the devastating effect that the slowdown had on the entire housing sector.

Understand How Recession Took a Serious Toll

During 2005, the home construction sector was at its peak. No amount of supply could meet the ever-rising demand. During this period, homeownership statistics were very high across the nation. However, some policy mistakes and regulatory oversights combined with the forthcoming recession ensured that an unprecedented shock was delivered.

Demand gradually declined and rising interest rates further mocked interest homebuyers. As the national and global economy started crumbling, house prices declined but not sufficiently to stimulate a rise in demand. Potential home buyers grew more skeptical about their sources of income and lending had already become too stringent.

It should be noted that the industry was among the first to show signs of recovering in a battling economy. The process has taken five years but its former glory hasn’t been restored, yet. Yes, the housing construction business grew impressively by double digits for two consecutive years—2012 & 2013. However, this growth seems impressive because during the preceding years, the demand was abysmally low. The journey of recovery has been slow and steady so far but now it seems ready to push through.

Having Recovered, Industry is set to Grow Insatiably in 2014

The overall picture seems rather encouraging for the next two years. A number of reasons explain this optimism across the industry.

For starters, genuine buyers who had been stuck during the slowdown years are set to return, i.e. demand homes. Whether they are first-time buyers wanting a new apartment or families trading for a bigger home, this is genuine demand that will drive ownership. In the last few years, homeowners have been very cynical about home ownership. This sentiment is fast changing. Job growth rate had impressed during 2013 and this trend will continue during 2014 with no palpable reasons for hiring to decline. Young adults are increasingly finding more jobs and getting better wages. Leading economic, trend-analyzing firms expect household incomes to increase and smaller businesses to recruit more during 2014.

Optimism Mixed with Some Caution

Construction firms are keeping a close watch on prices of building materials, ensuring that they are prepared for an unwarranted price hike. The national economy can do little if a major, international catastrophe emerges. More jobs need to be created across the nation to ensure that demand from first-time home buyers doesn’t decline.

Concluding Thoughts

The market is looking ripe for more home-ownership deals. Savings rates have dipped, bringing a cheer to families who have been waiting for normalcy to return. The stock market seems renewed and lending is becoming easier with financing institutions feeling more confident. Some mortgage trends are still in the negative but the numbers aren’t too alarming to halt the overall optimistic trend. The political instability that plagued the economy now seems largely cured. The much-argued stimulus packages and spending cutbacks aren’t derailing the enthusiasm of an upbeat market. Hiring is rising across the industry as demand for new homes is no longer being speculated.

Economic And Housing Activity Seeing Upward Movement

Good news! The National Association of Home Builders/First American Leading Markets Index (LMI) reports that the housing market in 58 out of approximately 350 metropolitan regions across the country stayed at or exceeded the last normal level of activity. This means that on average the nation is at 87 percent of the normal housing and economic activity. This is great news for every facet of the housing market, from buyers to mortgage professionals to realtors to brokers to builders and more.

Housing Market Seeing Slow And Steady Progress

NAHB Chairman Rick Judson also works as a home builder in Charlotte. He says of the report, “U.S. housing markets are continuing to see a slow and steady progress back to the normal level. As the confidence of consumers gets stronger, this increases the number of buyers that are in the market.” As a builder, he understands and sees this firsthand in his own business.

The co-sponsor of the LMI report, First American Title Insurance Company, released this statement from vice chairman, Kurt Pfotenhauer. “We are pleased to see these continuing upward market trends, which are highlighted by the signs of improvement that were seen in eight-five percent of all metro areas over the last year.” As you can see, this is a trend that is spreading across the country, which is a sign that the market may be finally recovering.

What has been the impetus to this change? NAHB Chief Economist, David Crowe, attributes it to the firming housing prices that are being found in a number of markets. He went on to say that the healthiest housing markets in the country are actually in smaller cities that have a strong local economy. Among these are the gas and oil producing states of Wyoming, North Dakota, Louisiana, and Texas. This may be due to the steady job market that is offered in the community, as well as the income levels.

Small And Large Cities Seeing Growth In Activity

Both small and large metropolitan areas are seeing significant growth in the housing market activity. In the larger cities, at the top of the LMI list is Baton Rouge, LA, which has a score of 1.41-, which means that they had an increase of 41 percent over their last normal market level. Other metros that were listed include: Austin, Houston, Honolulu, and Oklahoma City. Two areas have exceeded their previous norms. They are Pittsburgh and Harrisburg, PA.

In the smaller metro areas, the top of the list is Bismarck, ND, Casper, WY, and Grand Forks, ND. Odessa and Midland, Texas have an LMI score of 2.0 or better, which means that the housing market is now at double the strength that it was before the recession.

This is good news for all segments of the housing market. Beginning to see upward movement is almost certainly a trend that will continue to grow in other metro areas, both small and large. Continuing to watch the LMI, as well as other reports, can enable us to stay on top of the market now and in the future.