November 25, 2012 in Business

Home builders see positive signs

Ruth Mantell MarketWatc
 

WASHINGTON – Sentiment, not to mention stock prices, of home builders are perking up, and they have good reason.

The inventory of existing homes is at a 10-year low, according to data released this week by the National Association of Realtors. At the current sales rate, inventories represent a 5.4-month supply, the leanest supply since 2006.

“Builders are reporting increasing demand for new homes as inventories of foreclosed and distressed properties begin to shrink in markets across the country,” said Barry Rutenberg, a Gainesville, Fla.-based home builder and chairman of the National Association of Home Builders.

Building sentiment rose to a six-year high in November, while an exchange-traded fund of builders has roughly doubled from a year ago.

Meanwhile, the rental vacancy rate, which measures the proportion of the rental inventory that is vacant for rent, fell to 8.6 percent in the third quarter from more than 11 percent three years earlier, around the end of the Great Recession. In fact, recent rates are the lowest since 2002. Homeowner vacancy rates are also down from recession peaks.

“Rising rents are encouraging long-time renters to buy a home as a hedge against inflation, so we have the unusual situation of seeing both rental and buying demand rising at the same time,” said Walter Molony, a spokesman for the Realtors’ group.

Low inventories have price implications.

“The low inventories are also driving up home prices and will probably continue to drive prices up next year,” said Patrick Newport, U.S. economist at IHS Global Insight.

But official data likely understate supply, given shadow inventory from foreclosures and wary owners.

“Nonetheless, the improvement in virtually every home price measure combined with rising home-builder confidence suggests housing inventories have tightened,” said Conrad DeQuadros, an analyst at RDQ Economics in New York.

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