It’s Nearly Springtime for Home Builders

February 17, 2016 | By

December was unseasonably warm for many states across the country—the Northeast especially. Did this weather bring out more home builders to increase the supply of new homes to the market? Well, not quite.

Housing starts for single-family and multifamily homes dropped in the months of December (by 3.3 percent and 1.0 percent, respectively), according to the U.S. Census Bureau. However, the number of total housing starts in 2015 reached its highest level since 2007 (1.11 million in 2015). Whether this bodes well for another strong year in 2016 remains to be seen, says Frank Shaw, a business analyst with the Economic & Strategic Research Group (ESR) at Fannie Mae.

“We are predicting further growth, but not at the same accelerated pace as in 2015,” says Shaw.

Home builders appear to be equally as bearish. The National Association of Home Builders/Wells Fargo Housing Market Index (HMI) this month was at 60, a decrease from 65 in October, a sign that many markets “continue to show a gradual improvement, which should bode well for future home sales in the year ahead,” says Tom Woods, NAHB chairman, in an interview with CNBC.

Speaking with CNBC in December, Jack Micenko, deputy director of Susquehanna Financial Group, said the tough weather in warm climate markets such as Texas in 2015 pushed a lot of deliveries to the second half of the year.

The warmer weather will help builders complete the deliveries of these homes, but “it may not help new homebuyers looking to go out and buy under contract,” as the purchase market is most active in the spring, after the Super Bowl into May, notes Micenko.

Build Affordable Housing Affordably

One builder is figuring out that the best way to build homes in the warm-weather state of Texas is to do so as affordably as possible. DR Horton, one of the largest home builders in the country, launched its Express Homes in 2014 to target entry-level buyers. The Express line of homes is built at affordable rates and sells for prices upwards of $200,000. In addition to Texas, the company also has a strong presence in the Carolinas and Florida, CNBC reports.

Still, the spring sales season may not be as strong, as a housing shortage “appears to be in the cards,” says Lawrence Yun, chief economist for the National Association of Realtors®.

“People are not looking to trade up and sell the home they’re in, the market is not having that kind of churn, home builders aren’t able to build fast enough, and there is a higher demand than there is supply,” says ESR’s Shaw.

The prevailing hope, he says, is that more supply comes into the market this year. Hopefully the spring weather will help.

 

Estimates, forecasts and other views expressed in this article should not be construed as indicating Fannie Mae’s expected results, are based on a number of assumptions and may change without notice. How this information affects Fannie Mae will depend on many factors. Neither Fannie Mae nor its Economic & Strategic Research (ESR) Group guarantees that the information in this article is accurate, current or suitable for any particular purpose. Changes in the assumptions or underlying information could produce materially different results. The ESR Group’s views expressed in this article speak only as of the date indicated and do not necessarily represent the views of Fannie Mae or its management.

 

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