U.S. housing market trend signals hope

Hey there, time traveller!
This article was published 27/09/2012 (4923 days ago), so information in it may no longer be current.

House-builders in the U.S. are expanding their efforts and making a handsome profit selling new homes. This marks a switch from the four-year long recession in the U.S. housing market and may be an early sign of a wider economic recovery. Canadians who make their money selling to U.S. customers are likely to feel the benefit.

Signs of housing market recovery have been piling up in recent weeks. This week brought the quarterly report of Miami-based Lennar Corp., the country’s third largest house-builder, with 2011 sales of $3.1 billion. For the three months ending Aug. 31, the company reported $87.1 million of net earnings, far ahead of investment analysts’ estimates and up from $20.7 million a year earlier.

Los Angeles-based KB Home and Pulte Group, based in Bloomfield Hills, Mich., had recently also reported sharp increases in sales and earnings. Lennar’s report that its gross margin had increased by 2.1 percentage points to 23.2 per cent showed that housebuilding is increasingly profitable in the U.S. and likely to keep expanding.

These results corresponded with governmental measures of house-building activity. The U.S. housing and commerce departments estimated last week that building permits were issued for 803,000 homes nationwide in August compared with 645,000 a year earlier. Housing starts and completions in August were up by similar proportions.

None of this directly affects housing supply and house prices in Canada. It does, however, reflect the state of mind of U.S. families and the state of their family finances. The level of confidence has been restored to a point where families are buying new homes once again at prices that produce a handsome profit for the builders. The current economic downturn in the U.S. started with a collapse of the housing market which came about because lenders had financed house purchases by families that could not, in fact, afford a house. The resulting glut of new houses depressed house values for all homeowners. Credit markets contracted and banks ran into difficulty when large numbers of borrowers were unable to make their mortgage payments.

In the years since the 2008 collapse of the Lehman Brothers bank, the world has been waiting for U.S. consumers and banks to reorganize their affairs and resume their accustomed rates of borrowing and buying. The news from U.S. house-builders shows that important progress has been achieved in that direction.

Canadian industry and consumers have been waiting for this moment. For all the talk of diversifying Canada’s exports, the U.S. is still by far the largest consumer of Canadian exports. The U.S. families that move into those new homes will be buying more lumber and building materials, more furniture and appliances, more products for their basements, their yards and their garages. These may be made in China, Thailand or India, but they will probably be made in part from raw materials extracted from Canadian forests and Canadian land. Prices for the commodities Canada exports are likely to respond as U.S. demand strengthens.

U.S. economic recovery has yet to bring the unemployment rate down to politically acceptable levels. U.S. economic growth remains sluggish at 1.7 per cent per year. But at least the housing glut seems to be over.