After a good run in 2015 — possibly the best since 2007 when the housing recession had set in — the housing market had a shakier start this year.
The relentless drop in oil prices, China growth worries, sluggishness in other emerging markets like Brazil and Russia, and slowing growth in Japan and Europe, slumping commodities, geopolitical tensions, and a strong dollar took a toll on the U.S. stock market early in the year.
Homebuyers seemed wary of buying a home amid equity market volatility and global worries. However, the U.S. stock market has staged a dramatic recovery in the past month, easing fears of a recession in the U.S. and infusing signs of confidence into the economy.
Recent housing data has been rather mixed. U.S. housing starts rose 5.2% in February, a nice rebound after declining in January and December. However, the number of building permits — a gauge of future constructions — went down 3.1% in February, according to data released on Mar 16. Homebuilders’ sentiment index remained steady in March amid labor constraints and rising costs.
New home sales rose 2% in February, a rebound from the decline in January. However, existing home sales tumbled 7.1% in February after touching a 6-month high in January. Overall, we can safely say that the February data was better than the prior month.
The fundamentals also seem positive for the rest of the year. Construction activity is expected to pick up once the spring selling season gets into full swing. Steady job and wage growth, recovering economy, historically low interest/mortgage rates, moderating home price increases, rising rentals, rapidly increasing household formation and a limited supply of inventory — all point to consistently strong demand in 2016.
However, builders, in general, are facing problems regarding labor shortage and rising land and labor costs.
A shortage of buildable lots, skilled labor and available capital for smaller builders are limiting home production, thereby lowering the inventory of homes, both new and existing. Limited capital for land and land development has left entitled lands in short supply while increasing demand is driving land prices higher.
