The beleaguered housing market is finally showing some signs of
improvement as construction spending appears to have gained
steadily over the spring and summer months.
Homebuilders' confidence, as indicated by the National
Association of Home Builders (NAHB)/Wells Fargo housing market
index, rose four points to 49 in June - indicating that the
builders' expectations for the next six months have improved.
The index dropped to below 50 in the past four months from 56
recorded in January, indicating increasing builder concerns about
meeting ongoing and future demand due to a shortage of lots and
labor. The June number is just a point shy of the benchmark of 50
which indicates good housing conditions.
The housing slowdown that began in the second half of 2013 was
aggravated by harsh winter in the December quarter, delaying
construction and raising serious doubts as to the strength of the
Moreover, shortage of lots and skilled labor, rising cost of
materials and declining inventory of new homes were not making
things easier for the builders. Also, the spike in mortgage rates
and rising home prices were hurting demand. As a result, many
companies witnessed declining order trends in the December
However, as the winter chill subsided and spring selling season
set in, many homebuilders recorded improving order trends in the
March quarter. Order trends improved sequentially for
D.R. Horton Inc.
Toll Brothers, Inc.
Ryland Group, Inc.
) (RYL). Around this time, the sector also reported some
encouraging numbers indicating that the housing sector is gathering
New home sales for April, as reported by the Commerce
Department, rose 6.4% from March. Though sales were down 4.2%
compared with the prior year, it nevertheless marks an improvement
from the previous month. New home sales numbers for May are
expected on later this month.
Building permits, a gauge of future construction, also bucked
the previous trend. After declining for four times in five months,
building permits grew 8% in April from the previous month.
Existing home sales data increased 1.3% to a seasonally adjusted
annual rate of 4.65 million in April from 4.59 million in March.
Existing home sales rose for the first time this year at the
fastest pace since Dec 2013.
These encouraging data signal that the housing sector might be
on the verge of a recovery. Though headwinds from supply shortage
and rising land, material and labor costs exist, homebuilders are
increasingly optimistic of improving demand in the future
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