Consumer Confidence Lifting Home Sales

by Kris Hudson for WSJ blogs

The housing market has been disappointing in the past year, with sales essentially flat. But there are signs that the market is starting to stir.

The nation’s biggest public home builders are telling investors that new-home sales picked up during the second half of January, reflecting rising consumer confidence, low interest rates and an improving economy.

Taylor Morrison Home Corp., a builder in five states, on Wednesday reported a 30% increase in its January sales from a year earlier, following its 24% gain in the fourth quarter. That followed fellow builder M/I Homes Inc.’s report on Tuesday that its January sales were up 8% as well as recent comments from peers PulteGroup Inc., Ryland Group Inc. and Beazer Homes USA Inc. that January sales exceeded their year-ago tallies.

January was strong compared with one year ago partly because the weather in January 2014 was terrible across the country, hindering home sales. But Sheryl Palmer, Taylor Morrison’s president and chief executive, and other builders said that sales this January were also boosted by better consumer confidence, an easing of mortgage requirements and other tailwinds.

“We really saw strength in all of our markets,” she said on a conference call with investors on Wednesday. “We’ve seen that momentum building in mid-December and continuing to build through all of January. It was just a phenomenal week last week.”

It’s still too early to forecast a strong spring selling season, which typically starts after the Super Bowl and hits its stride in March and April as home buyers make purchases with plans to take occupancy while children are out of school for the summer. And builders such as D.R. Horton Inc. similarly were bullish on the eve of last spring, but the market sputtered to deliver results roughly flat with the previous year.

Yet analysts and builders now point to several factors buoying buyer confidence. The average interest rate on a 30-year, fixed-rate mortgage stood at 3.66% last week, down from 4.32% a year earlier. Job and wage growth have gained momentum in recent months, and lower gas prices have emboldened some buyers. Recent changes by the Federal Housing Administration stand to lower mortgage-insurance costs and down-payment requirements for entry-level buyers.

“I’ve got to tell you right now, I feel pretty good about what we see in the market in January and how everybody is reacting,” said Larry Nicholson, CEO of Ryland, on a Jan. 29 call with investors to discuss the builder’s quarterly results. “I see a lot more positives this year before the Super Bowl than I have in the past, quite a few.”

“The last two weeks have been so strong that the spring is looking really good right now,” said John Burns, chief executive of Irvine, Calif.-based housing research firm John Burns Real Estate Consulting Inc. But, he added, “ there could be a headline that turns this whole thing around tomorrow. It’s just dependent on consumer confidence.”

Builders, home sellers and economists are hoping for a strong spring season after home sales largely disappointed in 2014. Resales of existing homes declined by 3.1% in volume last year from 2013 to 4.93 million sales, and sales of newly built homes increased by a paltry 1.4% to 435,000. Mostly to blame were stringent mortgage-qualification standards, high prices, mounting student debt and wage and job growth that didn’t gain steam until later in the year.

Many economists expect both resales and new-home sales to increase strongly this year.

The National Association of Realtors predicts that resales will increase by 6.6% in 2015. In December, new homes reached an annual sales pace of 481,000, the highest in more than six years.

Redfin, a real-estate brokerage operating in 28 states, reports that, in the final week of January, requests from prospective buyers for its agents to set up home tours for them were up 35% from the same period a year earlier in markets where Redfin has operated for at least a year. In the same span, offers written by Redfin agents in those markets were up 29%.

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