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Housing recovery firmly in place

By Jack Keough

The October monthly housing statistics released last week by the U.S. Commerce Department clearly show that a rebound in the battered housing market is definitely underway. And that is good news for residential and commercial electrical contractors and distributors.

The Commerce Department said that builders broke ground on homes and apartments in October at a seasonally adjusted annual rate of 894,000, a 3.6% gain compared to September. That is the largest increase since July, 2008.

Two top executives of the National Association of Home Builders (NAHB) said the report shows that the market is definitely getting better.

“This report is in line with our latest builder surveys, which show improving confidence and optimism in the marketplace as buyers take advantage of low mortgage rates and very attractive prices,” said Barry Rutenberg, chairman of the NAHB, and a home builder from Gainesville, Fla. “Builders are acting to meet rising demand while continuing to exercise caution by pulling a modest increase in the number of single- family permits as the market continues to gradually gain its footing.”

David Crowe, NAHB’s chief economist, added in a prepared statement, “This report bears out similar changes in other economic indicators that housing continues to recover at a slow but steady place, and is right in line with our expectations of modest month-to-month growth. However, we still have a long way to go to get back to normal production as inaccurate appraisals, tight lending conditions for home buyers and policy uncertainties continue to impede the recovery.”

Single-family home construction dipped 0.2% to an annual rate of 594,000, down slightly from a four-year high in September. Apartment construction increased 10% to an annual rate of 285,000.

The Commerce Department said Superstorm Sandy had a “minimal” effect on the data because the storm hit only a small part of the country and occurred at the end of the month.

The data showed new building was up in two of four U.S. regions. Building rose 17.2% in the West and 8.9% in the Midwest, but decreased 6.5% in the Northeast and 2.5% in the South.

Meanwhile, builder confidence rose to its highest level in six and a half years, according to a survey by the NAHB/Wells Fargo. Their index of builder sentiment rose to 46 points this month, up from 41 in October. This is the highest reading since May 2006.

Derived from a monthly survey that NAHB has been conducting for the past 25 years, the NAHB/Wells Fargo Housing Market Index gauges builder perceptions of current single-family home sales and sales expectations for the next six months as “good,” “fair” or “poor.” The survey also asks builders to rate traffic of prospective buyers as “high to very high,” “average” or “low to very low.” Scores from each component are then used to calculate a seasonally adjusted index where any number over 50 indicates that more builders view sales conditions as good than poor.

The index has been rising since October 2011, when it was 17. It has surged 27 points in the past 12 months. Though home construction accounts for only about 2.5% of GDP, economists estimate that for every new house built, at least three new jobs are created, according to a report in the Wall Street Journal.

Compared with a year earlier, new home construction was up 41.9%. It is at its highest rate since July 2008, before the depths of the financial crisis.

Economists at Goldman Sachs estimate that household formation — the net increase in the number of households each year — will increase to a 1.2 million rate in 2013 from 1 million currently, the Journal reported.

They forecast housing starts rising to a 1 million rate by the end of next year and 1.5 million by the end of 2016.

Groundbreaking for new homes has risen 41.9% over the last year, but starts remain about 60% below the peak of 2.27 million reached in January 2006.

Jack Keough was the editor of Industrial Distribution magazine for more than 26 years. He often speaks at many industry events and seminars. He can be reached at john.keough@comcast.net or keoughbiz@gmail.com

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