What key building indicators should you be watching and what do they mean?
The media has been highlighting a surge in new construction and return of big home builders and developers to the real estate market. There are even sensational new stories of home buyers sleeping in their car just for the hope of getting a chance to bid on new homes and new developments selling out in hours.
Whether investor, home buyer looking for a new residence, or an individual looking to get into either building homes or buying builder stocks, it pays to have a grasp on the real data and fundamentals of the industry.
So what building indicators should you be paying attention to and how do you interpret them?
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New Home Sales
US Census New Homes Sold
Perhaps the most prominent figure that attracts the most attention is new home sales volume via the US Census. This shows what?s actually moving. The good news is that the Commerce Department reports new single family home sales rising 20%? last year, while the National Association of Realtors? (NAR) February 2013 U.S. Economic Outlook calls for this number to more than double by 2014. However, when reviewing this data on a monthly basis, individuals need to be aware of the potential for significant revisions in figures later on.
New Home Prices
Obviously sales volume alone doesn?t necessarily reflect strength and could at times be a result of dramatic widespread discounts or stimulus. However, the U.S. Commerce Department also reveals the median home prices of new homes sold in December 2012 show a 9.6% lift from a year earlier.
Builder Confidence
Those looking for indicators of the real underlying soundness of the industry will perhaps find the National Association of Home Builders/ Wells Fargo Housing Market Index (HMI) the most telling. This gauges home builder confidence, or how the insiders really feel about the strength of the market. After rising for 8 straight months, the index remained at a 6-year high in January 2013. However, while this is portrayed as a monumental improvement, it is wise to recognize that the HMI stands at only 50, the midpoint on the scale. Also note regional differences in the index currently at a low of 36 in the Northeast and high of 51 in the West.
Wells Fargo National and Regional Market Index
Housing Starts
Building on the above, the number of housing starts shows a combination of home builders putting their money where their confidence really is, as well as movement in orders for new homes. The National Association of Home Builders (NAHB) reports that gains in multifamily and single family housing starts pushed up the rate by 12.1% in December 2012, to the highest level in 4 years. A precursor to starts and a figure often confused with this is the number of permits being issued. This rate edged up slightly at the end of last year, though could blossom significantly now that the holidays are out of the way.
Construction Jobs
Another key indicator of whether home builders are actually putting shovels in the ground is construction jobs and hiring. New data from the JOLTS report and Bureau of Labor Statistics show construction job openings rising, with 92,000 positions open at the beginning of the year. However, it is interesting to note residential trade contractors adding employees faster than direct hiring by residential builders. The media also reports the construction industry regaining 34,000 jobs that were lost in the recent downturn.
Other Key Building Indicators to Watch
Other indicators to watch include pending sales of new homes. While generally a wishy-washy data set to bet on in the real estate sector, it can provide a general indicator of market sentiment.
The financial strength of home builders and their financial performance is also something to watch. Bloomberg News has recently reported on multiple major U.S. home builders realizing around 50% increases in revenues; a good sign of stability.
Finally, keeping an eye on the level of new home inventory on the market shows the strength of the market in real time and the likelihood of prices increasing or decreasing in the immediate future. As of November there were 149,000 units available; the equivalent of a 4.7 months? supply at the current pace.
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LGI Homes is The Leader in Affordable New Homes offering entry-level new houses and communities in Arizona, Texas, Florida and Georgia. Learn more about LGI Homes by visiting them online at www.lgihomes.com.
Source: http://www.buildingmoxie.com/2013/02/home-to-read-hom-building-indicators/
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