Recently released figures show that homebuilders in the United States are more confident of the outlook for new housing than they have been in over six years. The National Association of Home Builders/Wells Fargo builder sentiment index has long been viewed as a great indicator of housing growth, the December figure going up 2 points to 47. Although figures below 50 are generally considered an indication of a sluggish housing outlook, the index has been climbing consistently, causing experts to speak optimistically about the future of U.S. housing.
Homebuilders Seeing Growth
Some builders have seen especially good growth in their markets and have projected continued growth into 2013. For example, Olson Homes, a Southern California builder, said its demand has increased since February. Olson is projecting a 45% increase in sales for the year. Olson Homes president Scott Laurie said, “Sales have been unbelievably strong.” The company says it has grown its employee base by 25% this year and is acquiring land in anticipation of opening new communities by the spring busy season.
Another big housing market, Houston, is home to David Weekley Homes, which has experienced a 40% increase in sales of new homes compared to last year. The company builds new homes in
8 states and has seen so much demand, it has raised its prices as much as 5% in some areas. The company’s CEO, John Johnson expressed some reservations about how robust the housing rebound will be in light of current unemployment rates across the country. He said, “That has to improve for the market to really come back to where it should be.”
Not every builder has had the same success. The index that tracks builders’ sales outlook for the next 6 months is down a full point, leading some to be less optimistic about growth until this index improves. Another factor that some point to that dampens their enthusiasm is the fact that inventory of existing homes available for sale (not new builds) has decreased substantially. This, in turn, reduces the competition for new homes, so it’s not a positive for builders.
Even with some indicators acting as moderators of growth in new housing sales, NAHB’s David Crowe said, “The consistent upward trend in builder confidence over the past year is indicative of the gradual recovery that has been taking place in housing markets nationwide.” He sees it as a gradual process that is not going to be one continuous spike, but rather a slow and steady road to recovery.
Outlier events like Superstorm Sandy certainly don’t help overall growth in the short term, and events like that are hard to account for in projections. Economist, forecasters and other experts in planning circles love indexes and other statistics they can point to for rationalizing their outlook of the future. They all do the best they can with the information they have, but one thing that is certain about forecasts is they are always wrong. The only uncertainty is how wrong they will be. Take indexes for what they are and, as always, use your common sense interpreting what they mean.
