Home Builder’s Gains Signal Housing Market Recovery

The housing market seems to be recovering and improving as home builders are reporting gains. Nationally, growth has been driven by pent-up demand, reasonable affordability levels and high rental-occupancy rates. Despite all the turmoil the market has seen recently, the new-home market is improving, slowly and steadily.

Lennar Corp., the second-largest US home builder by houses constructed, posted double-digit percentage gains in new orders, deliveries and net income for its fiscal third quarter. Lennar reported a 10% increase in orders from a year earlier, a 16% increase in deliveries of completed homes and a 5% increase in average price, to $350,000. The company’s health is indicative of a sustained recovery in the US new-home market. Lennar Chief Executive Stuart Miller described the market as improving in a “slow and steady manner.”

“We have believed and continue to believe that the downside in the housing market is very limited and the upside very significant,” Miller said. Though it is rebounding, the home-construction market remains at roughly half of its average annual output in the latest normal housing market of 2001 to 2003 due to weak demand for starter homes so far in the recovery and shortages of construction labor and buildable land. Furthermore, the share of Lennar’s sales going to first-time buyers rose to 30% in its third quarter from 25% a year earlier. This mirrors a report by the National Association of Realtors that showed 32% of sales of existing homes in August went to first-time buyers, up from 29% a year ago.

Lennar remains bullish on its rental-apartment business, which has 28 projects totaling 7,700 units under development with partners. “There is very, very large pent-up demand both in rental and in for-sale (housing) for buyers who need to come back in,” Mr. Miller said. The company is ramping up efforts to build communities of single-family homes for rent.

Have you seen any other indicators that the housing recovery is well on its way?

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