New home construction is promising sign


Framers work on the construction of a new home in a development in Carlsbad, Calif. (Lenny Ignelzi/AP)

New homes are popping up in more and more neighborhoods around the country in recent months, offering one of the most promising signs yet that the nation’s long-suffering housing market is actually starting to heal.

The increase in new-home construction is particularly encouraging because of the economic benefits that ripple out each time a construction crew breaks ground. The growing demand for new homes has put contractors back to work, helped shore up some municipal budgets and pumped money into local economies.

“When you create jobs again in the housing market, you create some multiple of those jobs elsewhere,” said Brad Hunter, chief economist at Metrostudy, a national research firm that tracks new-home construction. “To build a house, you’re causing more demand for lumber, furniture, drapes, carpets, cement, steel, appliances . . . These are all industries that get stimulated by housing.”

That virtuous cycle is playing out in an increasing number of communities, helping to offset the vicious cycle of foreclosures and falling prices that have dragged down the market in recent years.

New-home starts are up nearly 30 percent over a year ago to an annual rate of more than 700,000, according to the most recent report from the Commerce Department. But the recovery is in its infancy with new-home construction still running at less than half of what it averaged in the decade leading up to the housing crash. A separate measure of home construction, permits for new homes, rose in May to an annual rate of 780,000 — its highest level in nearly four years.

How does that growth look on the ground?

In Greenville, S.C., where manufacturers such as General Electric and BMW have boosted hiring, the desire for new homes has kept developers busy.

“They are selling them about as fast as they can build them,” said Michael Dey, executive vice president of the local home builders association. “The challenge that we have now is that we’re going to hit a point that there aren’t enough finished lots to meet the demand.”

In Texas, the family-owned construction firm Sandlin Homes typically builds a couple hundred new houses each year in the Dallas-Forth Worth area. During the past six months, the company has sold 246.

“That’s more than all of 2011,” said owner Scott Sandlin, who has hired new office staff, construction superintendents and contractors to keep up with the work load. “And we’re just halfway through the year.”

In Windsor, Colo., a bustling town of 20,000 residents near Fort Collins, local officials planned on issuing about 200 permits for new single-family homes this year. Builders have pulled about that many permits through June alone.

“It’s been busy in the planning department,” said Scott Ballstadt, the town’s chief planner. “It’s a good thing.”

Home building has also begun to pick up in the Washington area. Single-family construction in the metro area is 50 percent higher than the low point of 2009. But that is still less than half of what it averaged during the decade before the crash.

Nationally, home building has picked up fastest in those places that were least scarred by the housing meltdown. States such as Iowa and North Dakota, which mostly avoided the crash and now have relatively low unemployment, are faring the best. States at the center of the housing crisis, such as California and Florida, still have a vast oversupply of homes and are picking up slowly. But even in these hard-pressed states, there are pockets of construction.

“Progress going forward will have a lot to do with how bad you got beat down in the first place,” said Robert Denk, a senior economist at the National Association of Home Builders. “The states that weren’t hit so bad are going to come back faster.”

While the nation’s economy continues to limp along, the housing market has shown signs of recovery this year, from stabilizing prices to fewer homeowners falling behind on their mortgages. The bulk of the housing market is existing homes, not new ones. But economists watch new construction with particular interest because of its outsize economic benefits.

Home building, like the broader housing market, saw a short-lived boost starting in 2009 from the government’s temporary tax credit for home buyers. Many economists, builders and real estate agents expect the current recovery will prove more lasting.

Total U.S. construction spending increased in May by the largest amount in five months, according to the Commerce Department, a boost driven largely by new-home construction. A monthly survey by NAHB showed that confidence among builders stands at its highest level since 2007. Even the strong rental market has translated into more need for new ­multi-family housing units.

Meanwhile, large publicly traded home builders such as KB Homes, Lennar Homes and Toll Brothers have reported increased orders and double-digit revenue increases recently.

“I think it’s five years of pent-up demand that is now coming out. People have put their lives on hold, now, for half a decade, and they’re ready to go,” Douglas C. Yearley Jr., chief executive of Toll Brothers, the Pennsylvania-based luxury home builder, told investors during a recent earnings call. “The interest rates are great. They feel better about their job security. They feel better about their ability to sell their home.”

Denk said the home-building market has been “bouncing along the bottom” in recent years but clearly has taken a turn. “For the last six or eight months, we’ve seen something that looks like improvement,” he said. “We are gaining momentum.”

Denk pointed to data showing that between 1990 and 2006, annual starts of single-family homes in the United States grew to a peak of 1.7 million. Then the bottom fell out, with such starts sinking to fewer than 400,000 in 2009. During the past year, they have begun to grow again, and Denk’s forecasts predict more steady, sustained gains. But like other close watchers of the nation’s housing market, he acknowledges that optimism comes with a long list of caveats.

The market for new homes, like existing ones, remains vulnerable. Roughly 2 million homes across the country remain in some stage of foreclosure, with more on the way, and they could flood the market. More than 11 million homeowners are trapped in homes that are worth less than they owe, constraining potential demand.

Meanwhile, tight lending standards have made it tough for many would-be borrowers to get loans and difficult for developers to undertake new building projects.

Toss in a lackluster job market and debt troubles in Europe that threaten to drag down the U.S. economy, and a housing recovery remains tenuous at best.

“This can’t cure itself overnight, so it’s going to be a multi-year recovery,” Denk said of the home-building industry. “It’s going to be 2015 or 2016 before we get back to normal.”

But at least in some pockets of the United States, that long climb back has begun. Back in Greenville, Tom Dillard has seen business grow 25 percent at his small construction company over the past year. He’s hired several new employees, signed up new framers and land graders, even bought a pair of Ford F-250 trucks and new earth-moving equipment.

“That’s the first time we’ve felt comfortable doing that in the past few years,” Dillard said. “We’re gearing up for what we believe will be better times.”

Brady Dennis is a national reporter for The Washington Post, focusing on food and drug issues.
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