A Gain in Housing is Good News for Subcontractors

A surge in home building reached 4-year high as of September. The housing recovery posted an annual rate of 872,000 homes last month, 15 percent higher than the pace in August. Builders also filed permits to build at a rate of 894,000 which is another gain of 11.6 percent. Both readings were the best since the summer of 2008.

“We’ve been seeing consistent improvement in housing for some time,” said Anika Khan, senior economist with Wells Fargo Securities, “but this is a big jump.”

Economists that were surveyed recently had reported an expected starts rise to a 768,000 rate and permits up to an 815,000 rate.

New home construction is a boon for contractors of all fields, most notably carpenters, electricians, masons, and plumbers. A conversion to new home sales will also benefit the financial services industry.

With mortgage rates near record lows, and the Federal Reserve’s decision to buy up $40 billion in mortgages every month, rates are set to remain low for the foreseeable future. A drop in unemployment, coupled with affordable housing prices have helped restart new home sales.

According to government studies, foreclosures have fallen to a five-year low, reducing the supply of distressed homes on the market. Four years of depressed levels of home building have cut the supply of new homes available to nearly record low levels.

All of these factors contribute to lift home prices and get contractors back to building again. And while there have been signs of improvement in the housing market leading up to Wednesday’s report, the latest numbers were far better than expected.

According to Khan, part of the increase is due to a 25 percent jump in the start of apartment buildings of five or more units. However, these are volatile numbers that could drop off next month. But, the 11 percent rise in new home starts for single-family homes is more impressive and less likely to change.

“We’re clearly seeing overall improvement of sales,” she said. “I don’t necessarily think this report is a one-month jump.”

On Tuesday, the National Association of Home Builders said its October survey of members found confidence among builders to be at its highest level since 2006. This is in comparison to the last four years- only 20 percent of builders said current conditions were “good” while 39 percent still categorized conditions as being “still poor.”

The news helped bolster stocks of publicly-traded builders PulteGroup (PHM), Lennar (LEN), DR Horton (DHI) and KB Homes (KBH) in early trading last Wednesday. Prices of builders’ stocks have more than doubled on average already this year.

Source:

Home Building Surges to 4-Year High CNN Money 10/17/12