REALITY CHECK: US HOME BUILDERS SAY AUG MARKET A TOUCH SLOWER
By Gary Rosenberger
NEW YORK (MktNews) - U.S. home builders say their market suffered a modest and temporary slowdown in August, as vacations and early starts to the school year played stronger-than-usual seasonal roles.
They did not blame rising mortgage rates, which climbed to new cyclical highs in August -- breaching 8.0% in mid-month before retreating to 7.80%.
They also stress that if August was soft, it was more than offset by a big early September performance.
"August slowed down in relation to the early part of the year and in the way we typically see during summer months," said Dick Hearin, vice president of sales and research for Northside Realty Builder Developer Services in Atlanta.
"People try to get their vacations in or focus on getting their kids to school -- home shopping gets pushed to the backburner for about 30 days," Hearin said.
Hearin said rising mortgage rates had nothing to do with the slowdown.
"What we did see was a shift away from fixed-rate mortgages to adjustable rates," he said. "But now interest rates have stabilized and fallen back a little bit."
But whatever weakness Hearin spotted in August was erased by a strong early September performance, when orders for housing were up 136% in that first week compared to the same week last year.
"I don't see any underlying market conditions that say there's a slowing -- we're still exceeding forecasts," Hearin said.
A Houston builder agreed that August was down from a year ago, but September came roaring back.
"We saw a little slowing in August -- we were 10% to 15% below last year," said Mary Daily of Royce Homes.
"Interest rates didn't have much of an effect. It could have been the heat or that people were focused on getting back to school -- I spoke to other local builders who had the same experience and we couldn't pin it down," Daily said.
Then things bounded right back in September -- "it more than offset August," she said.
One new trend that home builders are spotting locally is a loosening up of the labor market in the building trades, she said.
"Things are freeing up, it's easier to find contractors than it was last year -- and it makes it easier to get things built," she said.
Houston builders had been stymied for a year by labor and materials shortages -- but both appear to be on track again with prices retracing some of their steep increases.
"Maybe we're getting more people because the word is out that Houston is where the action is," she said.
But a no less likely scenario is that local builders have learned from past mistakes and are becoming more adept at planning, she added.
Despite the consumer pickup, Daily said escalating costs of land, and still high material and labor costs, have been pushed on to consumers, who are paying "15% to 20% more than they did a year ago" for a new house.
"Unfortunately, when the price of materials goes up so much, we can't add to our margins because there is a price point where people stop buying," she said.
A suburban Minneapolis builder said people shrugged off increased interest rates and higher home prices, making for an unusually strong August.
"Home building has held up very well in the Twin Cities -- I don't know about the rest of the industry but my sales were stronger in August than they were in July," said Hans Hagen of Hans Hagen Homes in Fridley, Minnesota.
"We have shortages of lots and carpenters -- but no shortage of buyers," Hagen said. "This industry is producing everything it can right now -- the Twin Cities is strong."
Hagen said that local job growth continues to fuel the market -- and workers are very much in demand, as testified by "four thick sections in the employment section of the Minneapolis paper last Sunday."
Nevertheless, the rising cost of home ownership is sounding some alarms about the future despite the current strength, he said.
"When interest rates move from sub-7.0% to 8%, that's a significant increase and it's got to effect the marginal buyer," Hagen said.
"Housing prices have also moved up 6% to 8% in the last 12 months -- you have that plus interest rates and it's got to have some impact eventually," Hagen said.
But he added that such arguments apply more immediately to other communities where "supply and demand are in balance."
"Here in the Twin Cities supply and demand are not in balance -- demand far exceeds supply," he said, noting that any sales slowdown would be a function of inventory shortages.
In North Carolina, residential construction remains firm despite recent interest-rate moves, said Nick Tennyson, executive vice president of the Durham and Orange Country Home Builders Association.
"We're still building a lot of homes," he said.
"I haven't heard anyone tell me they're not making sales cause of interest rates -- we haven't seen any fall-off," Tennyson said.
One major builder blew right past the recent interest-rate hikes.
"In our growth markets, things have been really strong for us all summer," said Lisa Terry, a spokeswoman for Ryland Homes, a national builder based in Columbia, Maryland.
"Interest rates aren't scaring anyone -- people have gotten very sophisticated and go for adjustable mortgages with the intent to refinance in a couple of years," she said.
"The strength of the economy is outweighing any hike in interest rates," Terry added. She said the only lulls she saw this summer were heatwave-related.
But another of the majors did notice a modest slowdown and, contrary to others, did blame interest rates.
"We did see a slight slowdown in August," said Kelly Fawcett Somoza, a spokewoman for Houston-based U.S. Home Corp.
"Traffic was good, sales were good -- but there was some hesitation on the part of the buyer, probably due to the volatility of interest rates," she said.
She added that the slowdown was in comparison to last August, which was a tough comparison to beat.
The National Association of Home Builders is scheduled to release its September builders survey index on Thursday at 1 p.m. EDT.
The U.S. Commerce Department is scheduled to release August housing starts and building permits data Friday at 8:30 a.m. EDT.
Editor's Note: Reality Check stories survey sentiment among business people and their trade associations. They are intended to complement and anticipate economic data and to provide a sounding into specific sectors of the U.S.
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