Darker U.S. homebuilder mood not just due to bad weather

Wed Feb 19, 2014 4:52am EST

Carpenter's work on installing fascia trimwork at a housing site at Mid-Atlantic Builders ''The Villages of Savannah'' development in Brandywine, Maryland May 31, 2013. REUTERS/Gary Cameron

Carpenter's work on installing fascia trimwork at a housing site at Mid-Atlantic Builders ''The Villages of Savannah'' development in Brandywine, Maryland May 31, 2013.

Credit: Reuters/Gary Cameron

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(Reuters) - A plunge in U.S. homebuilder confidence reported on Tuesday reflects a range of problems facing the construction industry seven years after the housing crash, challenges that go deeper than the severe winter weather blamed for much of the gloom.

The National Association of Home Builders said on Tuesday that builder confidence dropped 10 points between January and February, from 56 to 46, the largest drop since the survey began in 1985. Readings below 50 mean more builders view market conditions as poor than favorable.

But economists, analysts and builders say the decline in confidence is deep-seated and has lingered due to the widespread destruction suffered by the construction sector when the housing market collapsed. The industry faces a chronic shortage of laborers, difficulty in obtaining credit and a skittishness among developers to invest in new sites. (Reuters Insider: reut.rs/1gAYKfd)

The online real estate data firm Trulia analyzed weather and housing data for the past decade and estimated that severe winters have contributed at most a 2 percent downturn toward construction activity in recent years.

The housing crash has left in its wake a glut of vacant existing homes in many cities that has done more than the weather to dampen new home construction, experts say.

Jed Kolko, Trulia's chief economist, said because cities such as Las Vegas, Miami and Phoenix still have many vacant homes, those existing houses - rather than the weather - have been one of the biggest drags on the construction of new single-family homes, which account for roughly two-thirds of the U.S. housing market.

Madeline Schnapp, director of economic research at the data firm PropertyRadar, said the construction sector was "obliterated" after the housing crash, which contributed to the 2008 financial collapse.

According to the U.S. Bureau of Labor Statistics, of the 8.2 million jobs lost during the Great Recession, 2.3 million were in construction.

As a result, Schnapp says, the building industry is still several years away from attracting back the skilled labor force it needs to build new homes.

Jeff Dworkin, who runs a home building business in Dallas, Texas, said demand for new homes was rising, but was still a long way from the heady days before the crash. He doubted that sort of demand will ever return.

"And we have a problem. The average age of a mason in Texas is over 60," Dworkin said. "So we have a shortage of masons, framers and painters. I know contractors who used to be able to hire them for $100 a day. Now it's $150."

Another factor hindering builders is the number of U.S. homeowners still underwater on their mortgages, which stops them from looking for new places to live, Schnapp said.

According to the housing tracking firm CoreLogic, 13 percent of U.S. homeowners owe more on their mortgages than their homes are worth. In California, 20 percent of homeowners are still saddled with negative equity.

Robert Denk, senior economist at the National Association of Home Builders, said builders - like many potential buyers - are also struggling to get loans, as banks' lending standards have tightened.

(Reporting by Tim Reid in Los Angeles; Edited by Ronald Grover and Lisa Shumaker)

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Comments (7)
JustProduce wrote:
Considering that replacement costs are too high and that most of last year’s sales were to investment managers like Blackrock, there is no reason why builders should be upbeat.
But at least they know that it has nothing to do with the weather.
From the government, to economists, naive optimism about a recovering real estate market abounded despite the evidence. No one stopped to see that homes were being sold too cheaply for builders to want to compete. Moreover, such homes were being sold to very visible institutions rather than families. The latter should had been clear by two facts: (1) the banking system has yet to come back fully to the real estate loan market and (2) the bonds created by Blackrock were billions of dollars in homes bought for rent and then securitized.
This is why I have a hard time thinking of economics as a science. Pseudo-scientists like economists are great at curve-fitting until they see what they want from charts. Real scientists would be glad to be surprised by the evidence.
Keep walking people, no new news here.

Feb 18, 2014 10:09pm EST  --  Report as abuse
4sight2020 wrote:
maybe if people had jobs they could buy houses. someone should tell the president that his stimulus plans aren’t working.

Feb 18, 2014 11:35pm EST  --  Report as abuse
seterk wrote:
Sorry but this has the tone of a slam piece…

Feb 18, 2014 11:47pm EST  --  Report as abuse
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