Four recent major reports indicate that housing is picking up.
The pending home sales index for the number of contracts signed to buy a new home rose 2 percent to 93.7 in December 2010. Over the last six months, five have reported gains.
December 2010 existing home sales rose 12.3 percent from November, to a rate of 5.28 million (seasonally adjusted annual rate) and was also represented the fifth increase in six months. This lowers existing homes for sale months supply to 8.1, down from 9.5 months in November. Resales of single-family homes increased 11.8 percent to a seasonally adjusted annual rate of 4.64 million from a November rate 4.15 million.
According to the New Residential Sales report form the U.S. Census Bureau, new home sales jumped more than 17 percent in December. The seasonally adjusted annual rate of sales was 329,000, and there were only 191,000 new homes for sale in December. This is the lowest number of new homes for sale since February of 1968. This represents only about 6.9 months supply of new homes at the current sales rate.
Also according to the U.S. Census Bureau, permits increased more than 16 percent in December. That is the fourth consecutive increase for single family permits. The lumber and building material industry has been particularly hard hit in the housing down-turn, a steady increase in new home construction would give the building material industry and the economy as a whole a significant boost. Lumber prices have increased in the last few months, and should continue to rise as domestic and global homebuilding picks up.
There are several forces converging that should continue to increase new home starts and permits in the future. Many economists agree that annual demand for new housing units is approximately 1.6 million. This figure is derived by adding 850,000 annually from new household creation and an estimated 750,000 homes that need to be replaced because they were destroyed by fire, flood, storms and urban renewal or have aged to the point they must be replaced.
It wouldn’t take much to deplete the inventory of new homes. Also, as employment picks up (which it seems to be slowly doing), fewer homes will be lost to foreclosure and most of those who lost their homes to foreclosure will want to move back into a home. There have been a large number of lumber mills that have been curtailed or shut down, many have been dismantled or converted to another use, and those that are left have tried to cut their losses by running at a lower capacity.
Building material wholesalers and distribution yards have also closed, and those that remain have drastically reduced their inventory and personnel. Credit facilities for these crucial components of the distribution chain have been reduced, severely constricting their ability to buy inventory. About 80 percent of the building material supply houses have closed, so there is no inventory buffer at that level. As demand for new homes domestically and globally picks up, prices for lumber and building materials will move up.