story by Prashant Gopal and Brian Louis
Editor’s note: The City Wire has included relevant information about Arkansas’ housing market.
BLOOMBERG — For the latest sign of a U.S. housing rebound, Toll Brothers Inc. Chief Executive Officer Douglas Yearley points to Hoboken, New Jersey: A couple torn between two condos last month at the sales office for its Hudson Tea complex decided to think about it over lunch. When they returned an hour later, both units were gone.
“People feel like now is the time to buy and they aren’t isolated to one building in Hoboken,” Yearley said in a May 23 conference call with analysts after the Horsham, Pa.-based luxury homebuilder reported that quarterly orders for new homes surged 47 percent. “Confidence is up. The interest rates are there and they’ve been waiting so long to move on with their lives that they came out this spring.”
U.S. homebuilders are reporting their most-improved spring selling season in seven years as record low mortgage rates, job gains, and shrinking inventories are drawing buyers to sales offices that have been quiet since the property market collapse. After dragging the economy into recession, housing is set to “contribute modestly” to growth, according to Vincent Foley, a credit analyst for Barclays Plc in New York.
Purchases of new homes in April increased 3.3% from the previous month to an annual pace of 343,000, the Commerce Department said May 23. The largest publicly-traded homebuilders reported an average 25% increase in purchase contracts in the first quarter, the biggest jump since 2005, according to Barclays.
April was not kind to Arkansas home sales.
There were 1,455 homes sold during April in the four large market areas measured by the The City Wire’s Arkansas Home Sales Report, down 9.01% compared to April 2011 and down almost 30% compared to April 2010.
However, Thanks primarily to year-to-date gains in the central Arkansas and Northwest Arkansas markets, home sales in Arkansas’ large-market areas are up 0.92% for the first four months of 2012 compared to the 2011 period.
In Central Arkansas, home sales are up 4.59% for the first four months of 2012. During the same period, sales are down 3.2% in the Fort Smith area, up 1.12% in Northwest Arkansas and down 11.52% in the Jonesboro area.
Building permit values in Central Arkansas are trending slightly higher. March 2012 permit values in the area reaching $80.66 million, slightly ahead of the $79.591 million in March 2011, according to data set to be released next week in The City Wire’s The Compass Report for Arkansas’ top three metro areas.
Permit values in Northwest Arkansas in March 2012, according to The Compass Report info, totaled $29.832 million, more than 8.5% higher than March 2011. Also, April permit values increased 8.87% among the five largest cities in Benton and Washington counties when compared to a year ago.
The picture is not as good in the Fort Smith area. Building permit values in the Fort Smith area (from the cities of Fort Smith, Greenwood and Van Buren) totaled $8.492 million in April, down from the $9.885 million March total, which in turn was down from $9.976 million in April 2011. Year-to-date, values are at $38.69 million for the three cities, down more than 49% compared to the 2011 period.
While demand for existing homes has been on the rise in recent months, the improvement in new home sales signals that the growing appetite for residential real estate goes beyond foreclosures and other distressed sales targeted by investors.
Traditional homebuyers, including those who have to sell another property to upgrade, are coming off the fence, Stan Humphries, Zillow Inc.’s chief economist said.
Mortgage rates for 30-year loans fell to 3.78% in the week ended May 24, the lowest in Freddie Mac records dating back to 1971. The Federal Reserve has pledged to hold interest rates near zero through the end of 2014 and has bought home-loan bonds to lower borrowing costs.
Rising apartment rents also are driving Americans who have good credit and enough money for a down payment back into the housing market. Effective rents, which take into account such landlord concessions as a free month, climbed almost 1% in the first quarter from the previous quarter, the largest jump since the last recession began, according to REIS Inc.
“There are signs that this is a broader-based recovery,” Humphries said. “It is really driven by affordability and buyers feeling more confident about the housing market.”
50 IN A ROOM
About 5,000 potential buyers showed up for the opening of nine model homes last weekend at The Bridges, a community in Delray Beach, Fla., built by GL Homes, said sales agent Robert Macias. The company used eight golf carts to shuttle customers from their cars and sold 18 homes over the weekend and another handful this week, he said.
The company, which sells homes in the community for about $500,000 to $1.5 million, has raised prices about 5% since preconstruction sales began in February, East Coast Division President Marcie DePlaza said.
“There were times when you’d walk into one of the models and there would be 50 people in a room,” Macias said. “This is not like the boom because they were buying here because they want to live here, not because they want to make an investment.”
‘BUMPY AND PROTRACTED RECOVERY’
Homebuilders that stalled production during the crash are beginning to ramp up, said Metrostudy Chief Economist Brad Hunter. Housing starts in the first quarter jumped 20% from a year earlier, according to the Houston-based firm, which tracks new construction in 84 metropolitan areas. In Phoenix, starts jumped 58% and increased 30% in Northern California, he said.
Inventory of finished new homes was down 13.4% from a year earlier and the supply at the current pace was 2.7 months, Hunter said.
The jump in demand is encouraging, though the recovery in housing is fragile and faces economic headwinds, including Europe’s sovereign debt crisis and possible U.S. government budget cuts next year. While unemployment has dropped to 8.1% from 10% in October 2009, it’s still above the 10-year average of 6.6%.
The pace of new home sales last month was less than half the average of the past 10 years, according to Commerce Department data. While property prices fell 3.5% in February, the smallest 12-month drop since February 2011, it extended the decline since the 2006 peak to 35%.
Home sales are also limited by tight lending standards, as lenders require higher down payments and credit scores.
“This spring selling season beat almost everybody’s expectations,” said Michael Widner, an analyst with Stifel Nicolaus & Co. in Baltimore. “But this was a strong quarter in what is likely to be a bumpy and protracted recovery.”