Thursday, March 7, 2013

Wells Fargo economists optimistic about U.S. housing market

New U.S. home sales surged 15.7 percent in January from December, suggesting that the housing recovery remained intact throughout the year-end budget battles and lead-up to the budget sequester, according to the latest housing report from Wells Fargo & Co. economists.

Sales of existing homes also increased modestly in January compared to December, and even though housing starts fell slightly, the pace of new construction remains well ahead of last year’s total build, the authors wrote in their report released Thursday. 

Another promising sign: Single-family starts increased in January and are now at their highest level since July 2008.

Saying they "remain optimistic about the housing market's prospects for 2013," the economists forecast a 30 percent increase in single-family starts and a 29 percent rise in multifamily units.

The caveat in the latest data, the authors say, comes from the Wells Fargo/NAHB Home Builders’ Survey, which appears to have hit a wall in recent months, just below the key 50 break-even level. A reading below 50 means more builders rate the current sales environment as poor than view it as good. 

"The survey has a long history, and the recent stall may be a hint that something is amiss in the housing recovery story," the report says.

The report address frustration that some builders may feel. The authors say many smaller builders are having trouble securing developed lots. New residential development financing is still difficult to come by across much of the country. Not only are lots more expensive, but construction materials prices have also increased. Moreover, builders in many markets report they are having increasing difficulty finding and retaining skilled workers. All of this has happened with overall construction running at a pace that is still less than two-thirds of its long-run average.

One peculiar aspect of this housing recovery, the economists noted, has been the unusually large role cash purchases have played in driving sales and prices higher. Cash purchases accounted for 36 percent of all existing home sales in 2012, which is roughly twice the historic average, they said. The rise in cash purchases is being led by investors purchasing properties to rent.