After years of glut, could we actually be facing a housing shortage? June inventory of homes has plummeted 24% in the last 12 months, the largest annual drop in some 30 years. June’s existing home prices were up almost 8%, the strongest since February 2006 and the fourth consecutive month of price increase, year-over-year. There’s a significant reduction in the number of foreclosures, and many that are being offered are getting wrestled from the market by investors seeking access to rental demand. While general economic conditions continue to be of concern, housing has been a bright spot. Builders have broken ground with more new homes in June than in any month in some four years and are now at a two-year high.
What’s more, home-builder sentiment in July climbed to a ten-year high. All of the four regions tracked posted gains, with particular significance in the West. Hot markets include coastal California, Miami and even Phoenix, all regions “put out for life support” just two years ago. Pent up demand and low mortgage rates have combined to propel home affordability to an all-time high in the first quarter, with the average rate on 30-year fixed rate mortgages reaching a record low. And Wall Street is clearly rewarding the trend, with home builder stocks up 52% year-to-date while the S&P500 continues to languish.
Beyond the numbers, Americans are feeling better emotionally about home ownership with growing confidence. In fact, the recently published Prudential Real Estate Outlook Survey showed that nearly two-thirds of the respondents have a favorable perception of the US housing market.
As we enter the second quarter of earnings season, housing is increasingly the picture of optimism. Channel checks suggest nearly universal improvement, with volumes rising sharply and price appreciation taking hold. Louisiana Pacific shares reached a 52 week high last week, and next week we look forward to further consensus with reporting by Ryland, NVR and DR Horton as well as USG and Fortune Home & Security.
While it is uplifting to view the macro environment, I realize each manufacturer of home and building products has a unique circumstance from which to navigate. As we look forward to The International Woodworking Machinery and Furniture Supply Fair, who brings their bi-annual event to our hometown of Atlanta in August, I hope I’ll have the opportunity to learn more together about your own brand’s opportunities for 2013.