Home building and housing sector sentiment is on the rise.
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The housing market may still feel unaffordable, but recent data suggests reason for optimism.
Industry sentiment is ticking higher, construction is ramping up, and residential investments are climbing.
Home builder DR Horton reported that it expects to close on more homes than previously expected.
No one can pretend that buying a home in the US is cheap right now.
Near-7% mortgage rates and tight inventory are still keeping affordability low, and current owners staying put are making it hard for house hunters to find anything to buy. Redfin reported that a mere 1% of homes have changed hands in 2023 — the lowest proportion in at least a decade.
Still, recent data coming from the supply side of the equation suggests there may be reason for optimism.
Look at real estate giant D.R. Horton. In the three months up to June, the firm’s purchase contracts climbed 37% to 22,879 homes compared to the same quarter last year. That squarely beat Wall Street estimates. Plus, it reported that its cancellation rate dropped from 24% to 18% year-over-year.
The bellwether construction name now expects to close on as many as 83,300 homes in the fiscal year ending in September, up from its prior estimate of 77,000-80,000.
The Commerce Department Wednesday said home building starts in June ticked higher to 1.44 million homes, at a seasonally adjusted, annual rate. That pulled the second-quarter’s average of 1.45 million homes above the first-quarter level of 1.39 million — good for the first quarterly increase since early 2022.
Based on those figures, economists at the Atlanta Fed now forecast that residential investment grew at a 0.1% annualized rate, per the Wall Street Journal.
That’s the first quarterly gain in over two years. Separate building permits data also point to further growth in residential investment to start the third quarter.
What’s more, earlier this week a key gauge for homebuilder sentiment hit its highest mark in 13 months, with an increasing number of buyers feeling upbeat about new construction.
To be sure, even the most upbeat building forecasts today won’t create anything close to a supply glut in the near future. Supply issues have persisted for more than a decade. As things stands, inventory levels remain historically bleak. Data from the National Association of Realtors shows that sellers put 1.08 million homes on the market in June, down from 1.92 million in June 2019, before the pandemic.
And home prices, meanwhile, are hovering around record highs.
Current owners that secured relatively low mortgage rates years ago are unwilling to move, as nearly a quarter of homeowners are sitting on a mortgage of less than 3%, near the highest share ever. That’s kept prices high even as demand slumps due to higher borrowing costs.
It’s possible that an eventual decline in mortgage rates to somewhere closer to 5% could bring more inventory to market and allow more buyers to break in. But it’s also possible that affordability stays low, since an influx of demand could push home prices up, though this could be offset by more building if construction accelerates in supply-starved markets.
“The first half of the year was a downer for sure with sales lower by 23%,” according to NAR Chief Economist Lawrence Yun. “Fewer Americans were on the move despite the usual life-changing circumstances. The pent-up demand will surely be realized soon, especially if mortgage rates and inventory move favorably.”