A modest recovery, with painstaking growth

With the exception of Denver, a few Texas markets, and surreal super novas in Northern California and the Pacific Northwest, it's been clear for awhile 2015 is not the "breakout" year that released a tsunami of pent-up demand into the market.

BUILDER sister company Metrostudy confirmstbvxwqvqdqrqdrafwyrvtdqcrzqtbbcdf that today with its latest Home Building Outlook, a series of projections that map the trajectory of recovery to continued modest bearings going forward, nothing to write home about, especially in markets where job and wages growth are in so-so mode rather than fueled with go-go momentum.

U.S. Economy continues a slow upturn from recession, rather than a V-shaped rebound.

The Metrostudy midyear restatement of its outlook for 2015 now calls for housing starts as calculated by the U.S. Census/Commerce Department to come in at 1.07 million, about a 6.4% increase over last year's underwhelming tally of 1.005 million. The single-family component in Metrostudy's new forecast is for 691,000 starts, clocking in a more impressive growth rate of 8% over last year's SF total.

Metrostudy chief economist Brad Hunter has this to say:

“While some in our industry are eager to see more rapid growth, a steady and sustainable rate of increase will be beneficial in the long run. Demand factors should continue to improve, and as rising rents eventually hit the pain point, more people will begin to consider home ownership.”

Considering the rose-colored-eye-glass prognostications of some of housing's most widely regarded analysts and economists a few short months ago, hearing that on a national basis, gains will tilt up 6% is somewhat of a let-down.

But in the face of what have been inimical conditions continuing on both the mortgage lending and AC&D lending side, and labor constraints plaguing some markets, the slow boat to recovery may work out to be the preferred method of passage.

Of course, for the big public homes builders, it's quite a different story on all fronts. Yes, they may be feeling a bit of hurt on the labor shortage front, especially as they try to bring online hundreds of new neighborhoods, many of them programmed for pricing and positioning for first-time to mid-level buyers, a gradual downshift in mix from the second-time-move-up and higher-end buyers served in the past 24 months or so.

But, clearly, big builders have both land and capital to move aggressively into place to both seed and seize the respective customer segments as they emerge out of the doldrums, find that they can get financing, and start their painstaking journey across the abyss from skyrocketing rentals into homeownership.

Calculated Risk guest poster Tom Lawler compiled this grid of operational performance yardsticks from the latest batch of earnings release announcement from nine of the public builders.

Nine public home builders' second quarter performance metrics.
Credit: Calculated Risk

Lawler writes:

There are several reasons why net home orders for these nine builders do not always track Census’ estimate of new home sales. First, Census treats sales cancellations different than do builders. Second, the geographic “footprint” of these nine builders does not match that of the US as a whole. Third, the market share of these builders can change significantly. And finally, there may be timing differences between when a builder “books” a sale and when a sale is recorded in Census’ Survey of Construction.

Nevertheless, reported home orders from publicly-treaded builders not only “confirm” that new home sales last quarter were below “consensus” forecasts, but also suggest that Census may revise downward its estimate for second-quarter new home sales in the July “New Residential Sales” report. 

So, the context is for continued challenge, and in many cases, adversity, even as a few dozen bright spot markets hog the headlines and threaten "bubble trouble." The real story is what some builders are doing to "outlie" the others, to be better than the rest. Average is over.