Southeast Housing Update: Modest Improvement Continues
According to the latest results from our Southeast housing market poll, contacts continued to indicate that growth remained positive. More than half of our Southeast builder and broker contacts reported that sales increased modestly on a year-over-year basis (see the chart).
Many builders indicated that buyer traffic had increased on a year-over year-basis. Reports from brokers were mixed (see the chart).
The majority of our Southeast builder panel indicated that inventory levels had remained unchanged from year-earlier levels, although most of our Southeast broker panel indicated that inventory levels had fallen from year-earlier levels (see the chart).
Most brokers and builders continued to report that home prices had increased slightly in January compared to year-ago levels (see the chart).
Two-thirds of brokers reported that the amount of available credit either met or exceeded demand (see the chart).
Similarly, two-thirds of builders indicated that the amount of available credit met or exceeded demand (see the chart).
It’s worth noting that while this picture hasn’t drastically improved over time, it hasn’t deteriorated much either despite the recent implementation of mortgage regulations (for example, thequalified mortgage rule, which went into effect on January 10). We plan to keep a close eye on this question as the year unfolds.
Residential construction update
Our builder contacts indicated that construction activity increased slightly on a year-over-year basis but remained unchanged month over month. Nearly three out of four builders reported that activity was in line with their plan for the period.
You may recall from previous SouthPoint posts that builders have faced challenges securing acquisition and development financing for lot development (here) and that builders identified lot availability as one of the biggest risks to their outlook (here). We posed a special question to our builder panel in an effort to gain more insight into the current lot inventory situation. Here are a few of the main takeaways:
- Overwhelmingly and regardless of the market, builders reported that finished lots are extremely hard to come by in desirable locations. With few finished lots in the most desirable areas, many builders have moved to B and C locations for vertical construction. (B locations have become the new A locations, and C locations have become the new B locations.)
- As a result of the increased demand for finished lots in good locations, contacts indicated that lot prices were appreciating rather quickly, and that this rate of price appreciation was problematic because the added cost on the front end does not align with the valuation that can be achieved on the back end.
- A few builders reported that they were in the process of developing new lots in A locations, but many more contacts noted that it was cost-prohibitive to develop raw land in any location at this time. The latter group reported that private acquisition and development money was available to fill the void that banks have left but noted that it was more expensive and would significantly raise the cost of development to the point where it becomes no longer viable. No one on the builder panel seemed to think that it would be viable to develop raw land in B and C locations at this point.
Outlook on sales and construction activity
Over the next three months, most builders and brokers expect home sales to increase. Although expectations remain fairly positive, contacts were slightly less optimistic about sales growth relative to their year-earlier responses (see the charts).
Nearly two-thirds of builder contacts expect construction activity to increase over the next three months. With that said, builders’ outlooks appear to be slightly less optimistic relative to their year-earlier responses.
Note: January poll results are based on responses from 42 residential brokers and 23 homebuilders and were collected February 3–12, 2014. The housing poll's diffusion indexes are calculated as the percentage of total respondents reporting increases minus the percentage reporting declines. Positive values in the index indicate increased activity, and negative values indicate decreased activity.
If you are a real estate broker or homebuilder and would like to participate in this poll, please let us know by sending a note to RealEstateCenter@atl.frb.org.
By Jessica Dill, senior economic research analyst in the Atlanta Fed's research department
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