Building permits and new home starts increase in July

By: Graziella Steele//August 25, 2014//

Building permits and new home starts increase in July

By: Graziella Steele//August 25, 2014//

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A new national report issued by the U.S. Commerce Department found that in July new housing starts increased significantly to an eight-month high, after two months of disappointing results. But do the numbers reflect a sustained rebound or a momentary blip?

The housing report said new housing starts in July increased 15.7 percent nationwide, rising at the highest rate since November 2013 and following declines of 3.9 percent in June and 7.9 percent in May.

The national numbers show that for the month, work on new single-family homes increased 8.3 percent while apartment starts were up 33 percent. In the South, housing construction was up 29 percent, according to the report.

And that growth may well continue as applications for building permits picked up 8.1 percent after posting declines of 3.1 percent in June and 5.1 percent in May.

Optimism, too, is growing among builders, according to another report released last week. The National Association of Home Builders/Wells Fargo builder sentiment index rose in August to 55, up two points from 53 in July. Any measure above 50 in the monthly national survey of home builders indicates a perceived housing market that is deemed “good.”  Builders also expressed confidence in future sales and higher volumes of consumer traffic.

In Mecklenburg County, 424 new single-family and town house permits were pulled with a value of $71.6 million. The number issued was up 33 percent from June and 22 percent from July 2013.

Bill Miley, manager of Charlotte market research at Metrostudy, a provider of housing market research and analysis, cautioned not to read too much into the government’s latest construction numbers, saying that the margin of error in the data is so large it can actually skew results. Metrostudy, on other hand, does its research through quarterly site surveys at subdivisions, Miley said. Thirty staff members are sent out to count vacant lots, homes under construction and finished but vacant properties.

“A permit is not a start,” added Miley, who said construction can lag a permit and sometimes builders will stockpile permit applications because “they are a pain the neck to obtain.”

However, Metrostudy’s data does show strong growth in housing starts in the Charlotte metropolitan statistical area, which includes Mecklenburg, Iredell, Cabarrus, Gaston and Union counties in North Carolina and Lancaster and York counties in South Carolina.

New home starts were up 8.3 percent in the second quarter of this year compared with same time last year, Metrostudy research found.

And the data on new construction closings was even stronger.

“When you talk about closings in the Charlotte MSA, closings were up 18.7 percent during the second (quarter) of this year compared to the second quarter of 2013,” said Miley.

Builders concur that the market is improving.

“Things started picking up at the end of last year,” said Wade Miller, president of Copper Builders in Charlotte. “The market for new homes is strong.”

But building new residential construction still has its challenges, he said. “There continues to be a lack of inventory in the market. (Real estate) agents keep saying, ‘I need more listings.’”

Alan Banks, owner of Evans Coghill Homes, said business is good.

“Our business, Evans Coghill Homes, has seen nearly a 50 percent increase in sales this year over last year – same time period – and, similarly, starts are tracking that way.”

Lack of skilled labor and available developed land is a big problem, too.

“All the good lots are bought up,” Miller said, adding that has started self-developing “to keep going.”

Even though he’s very bullish about the market, Banks sees significant “headwinds” that will hamper continued growth, including lot and labor availability and the impact of new government regulations for qualifying mortgages.

The biggest problem, according to Banks, is the lot shortage: “Nothing was developed for four or five years during the recession.” The lead time to develop land is two years, so “you can’t fill the shelves that fast.”

Metrostudy’s report shows that inventory in the Charlotte market is stubbornly low, at a five-month supply. Miley said a market in equilibrium should have a seven- to eight-month supply.

home buildersDuring the recession, when the bottom fell out of the housing market, there was an abundance of supply. Subsequently, inventory remained high at 10-months’ supply in 2010 and slowly began falling, according to Miley.

“Builders that made it through the recession had to give away homes to get them off the books in order to survive,” he explained. “Now, inventory is so low it is impacting the market with active listings way down.”

The large national builders with more financial wherewithal have been constrained by their corporate offices to pull back on development, according to Miley, while smaller local builders have had trouble obtaining financing to subsidize their projects.

The other big obstacle facing new residential construction is the lack of vacant developed lots within the Charlotte loop.

“There’s a shortage of vacant lots in the locations that people want to live in,” said Miley, such as those closer to center city where many people work as well as.

Where the shortage in new homes is most apparent is in the number of developed vacant lots, which Metrostudy data finds is at a 1.5-month supply. “The Charlotte market has never been so low before” in finished but vacant properties, he said.  The right amount of supply of finished but vacant properties is a two- to three-month supply, Miley believes.

Still, there are positive signs in new home construction in the Charlotte metro region.

“Starts and closings are rebounding, albeit slowly,” said Miley.  In order to keep the momentum going, he said, the city needs more jobs and better paying jobs so that people can afford to buy either new homes or resales.

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