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REALITY CHECK: US HOME BUILDERS SAY JUNE ORDERS, PRICES RISE
--Major Builder Sees 9% Price Increases on New Homes --Biggest Cost Push Appears in Land Prices --Higher Mortgage Rates No Damper to Housing Demand
By Gary Rosenberger
NEW YORK (MktNews) - Higher interest rates and pricier homes have done nothing to dampen the nation's enthusiasm for new homes during June, according to U.S. home builders.
One big builder says new homes have risen in price on the order of 9% during the latest quarter, reflective of strong consumer demand for housing.
Smaller builders complain that shortages of labor, materials and land have lengthened delivery times -- and add that municipalities are delaying permits either because they're overwhelmed by development or want to control it.
Surprisingly, steep increases in mortgage rates do not appear to have created a barrier for most consumers.
Average 30-year fixed-rate mortgages jumped above 7.0% the first week in May, climbing to a cyclical high of 7.71% the first week in July.
"At our price point, which is between $160,000 to $170,000, we're not seeing anything -- just a little bit of a shift to adjustable rate mortgages," said Richard Beckwitt, president of D.R. Horton, based in Arlington, Texas, and one of the nation's biggest home builders.
He observed that significant shifts in interest rates primarily affect the lowest and highest ends of the market, with mid-priced homebuyers able to withstand a wider latitude of rate shifts.
Beckwitt said the rate increases are not substantial enough to bump prospective homebuyers out of loans that they would have otherwise qualified for. For new homes, orders grew in June vs. the previous year but were down slightly from a robust April and May, Beckwitt said. He said that during the April-June quarter, D.R. Horton's orders were up by 20% in unit terms and 30% in dollar terms. "June was pretty reflective of the quarter, although it was a little softer," Beckwitt said. June's slight softening "is not indicative of a trend as much as it had to do with what the prior June was like," he said, adding that the month had a more difficult comparison to beat. "We have been able to increase pricing by around 9%, with half of that being pure price increases -- that is a reflection of demand," Beckwitt said.
The rest of the increase represents a mixture of bigger homes and increasing costs for material and labor, he said. James Zeumer, a spokesman for Pulte Corp., the nation's largest home builder, stated that the housing market "remained pretty strong" in June. "We saw a 6% increase in sales over a very strong month last year," Zeumer said.
"There continues to be very good demand across the country -- our belief is that even with the increase in interest rates, they remain at a historically reasonable rate," he said. "The increase (in rates) is offset by strong employment numbers and consumer confidence," Zeumer added. "The uptick in rates has not taken anybody out of the market -- maybe some marginal first-time buyers lost their opportunity, but traffic continues at impressive levels," he said.
Some homebuyers may have adjusted by going for a less than prime lot, or "not getting all the options," he said. "People can also adjust to variable-rate mortgages and come back in a couple of years and refinance -- people have become increasingly sophisticated and feel comfortable with the (loan) packages that are out there," Zeumer said.
A small Minnesota builder said his market remains very strong in the face of higher interest rates. Gary Laurent, president of Laurent Builders in the Minneapolis suburb of Shakopee, said local permits during June dipped slightly from the previous month but were "well ahead of last year's record June."
Laurent also shrugged off the recent rate increases, noting that the long-term forecasts he goes by indicate "they won't stay this high" -- and even if they do "they remain below the magic 8% number." "June was a pretty strong month in Minnesota," he said, adding that demand is slightly down from the early spring frenzy. "We always get this burst early in the year because our winters hold back demand and construction," he said. "By the time you get to June all that pent-up construction and demand has all pretty much been taken care of." Nevertheless, June "is still very strong ... it's a fantastic market," Laurent said. But there are downsides to this market, particularly for small builders, he said. Shortages of labor and some building materials persist and land costs are soaring. "The most dramatic increases we're seeing is in land and lot prices -- those outweigh all the other cost increases combined," Laurent said. Land costs are less of an issue for major builders because most are sitting on huge inventories of yet-to-be developed property. D.R. Horton, for instance, is sitting on a three-year inventory of land, according to its president. There are also shortages of developable land "and increases in fees for regulations from local governments," Laurent said. "We're seeing some cities taking advantage of the housing demand and charging bigger fees," he said. Other municipalities are "overwhelmed by growth and we're seeing delays in getting permits."
He noted that some municipalities that used to take 10 days to issue a building permit are now taking four to six weeks or longer, which can give a misleading impression of a slowdown.
There is a similar tale to tell in North Carolina, according to Nick Tennyson, executive vice president of the Durham and Orange County Home Builders Association. "This is a high growth area -- and we have all the problems and benefits associated with that," he said. "We're dealing with a lot of regulatory things that make life complex," he said. "Labor is still hard to come by, and land is more costly -- but still we're getting houses built." Tennyson said a recent run-up in lumber prices prompted some consumer complaints after builders notified their clients about extra charges associated with the price increase. "The market still seems to be very strong and there is no question that houses are becoming more expensive," Tennyson added.
The National Association of Home Builders is scheduled to release its July builders survey index on Tuesday at 1 p.m. EDT.
The U.S. Commerce Department is scheduled to release June housing starts and building permits data Wednesday
at 8:30 a.m. EDT. |
