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Through the Roof Again?
The Economist / June 29, 2013
America’s builders have responded cautiously to higher house prices. So far
THE stronger-than-expected 53% growth in quarterly sales reported on June 25th by Lennar, America’s biggest homebuilder by market capitalisation, is the latest evidence that the country’s housing market is recovering from its mid-decade meltdown. On the same day the Commerce Department reported that 476,000 new homes were sold nationwide in May, the third month in a row that sales have grown and the highest monthly total since July 2008. The S&P/Case-Shiller index of house prices in the 20 largest metropolitan areas beat expectations by rising by 1.7% (seasonally adjusted) in April and 12.1% year on year, the strongest annual growth since the market peaked in 2006.
Shares in the 12 largest publicly traded homebuilders have risen by over 150% since hitting bottom in February 2009, according to Goldman Sachs, whose analysts this week published their first research on the industry since abandoning it during the downturn. Though all this adds up to a significant rebound, it is modest in the context of the stockmarket rollercoaster ride that preceded it. Shares in homebuilders increased twelvefold in value from January 2000 to July 2005, only to fall by 85% as the housing market collapsed.
The number of new homes being built remains low, however. Having peaked at an annual rate of 2.3m in January 2006, new housing starts plunged over the next three years, to under 500,000. In each year since then, the annual total has been under 800,000. These are the lowest figures since records began in 1959. This year the total will exceed 1m, still less than half its previous high, predicts Goldman Sachs. The bank views the slow increase in supply as a reason for optimism. There is now only around 4.1 months’ worth of unsold new homes in stock, which should help sellers push up prices and thus margins.