Higher Homebuilder, Homebuyer Confidence Bodes Well for Housing this Fall: Zacks

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A recent Zacks report finds new data combined with higher homebuyer and homebuilder confidence will lead to a pickup in the housing market this fall.

Data released in August raises the hope that that the housing market recovery might finally be back on track, according to Zacks. Housing starts surged 15.7% from the prior month, to an eight-month high in July, beating expectations. After declining in June, building permits also beat expectations, increasing 8.1% in July.

The inventory of new homes for sale rose 4.1%, to 205,000 units in July, suggesting the supply is also improving. In July, month-over-month sales of existing homes rose 2.4%, up for the fourth consecutive month, while sales of new single-family homes fell 2.4%, below expectations, marking the only deviation from other housing indicators.

Plus, according to the August 2014 National Association of Home Builders/Wells Fargo housing market index, homebuilder confidence rose 2 points to 55, up to “its highest level since January, clearly indicating that builders are upbeat about their prospects for future sales.”

Many homebuilders, including Lennar Corp., PulteGroup and other large companies had faced a shortage of lots and skilled labor, rising costs of materials and declining inventory of new homes. But at least for now, the report finds, “serious doubts about the strength of the housing market” that resulted from a housing slowdown in the second half of 2013 and declining demand in the first half of 2014 are fading away.

Zacks reported that market insiders believe home demand, stabilizing mortgage rates, improving job market, good pricing environment and rising inventory levels will continue to drive construction gains. The softer-than-expected spring selling season may be followed by a housing market recovery driven by economic improvements, a better job market and still-low mortgage interest rates that altogether stimulate buyer confidence as well.

Other factors are at play. During an upturn, homebuilders like Lennar and Toll Brothers who have “solid land positions” will have a competitive advantage over builders with land availability constraints, such as Pulte whose net order growth declined significantly in 2013 and continued to drop, albeit at slower pace, in the first half of 2014, according to analysts.

Comparatively, Toll Brothers has secured some of the country’s “most sought-after urban locations” in New York City, Northern New Jersey, Philadelphia and Washington, D.C., “where land is scarce and approvals are not easy to obtain, analysts note. Similarly, Lennar “has enough land in all major markets to satisfy deliveries well into 2015.”

Texas-based D.R. Horton invested $2.6 billion in land, lots and development in 2013 and $1.7 billion in the first nine months of fiscal 2014, “positioning it well to meet demand for fiscal years 2014 and 2015,” analysts wrote. Even smaller-size homebuilders appear more aware of the importance of land investments, according to Zacks. For example, Ryland Group has spent $258 million on land acquisition and $166 million on site development in the first half of 2014.

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