Home building in New Jersey is accelerating this year (2013), as the state continues its slow recovery from the worst housing bust since World War II.
According to the latest census figures, construction permits for 6,215 units were issued in the state through April, up from 4,864 in the same period in 2012. Of those, more than half were in multifamily buildings.
New home construction up 20% in New Jersey
“Multifamily construction continues to drive New Jersey’s home building recovery,” said Patrick J. O’Keefe, an economist with CohnReznick, a New York-based accounting firm with an office in Roseland.
Apartments are in high demand because tighter mortgage standards and a sluggish employment market have made it tougher for many people to buy homes. In addition, many young people prefer the flexibility of renting as they work to establish their careers in an uncertain labor market.
Lenders also are more willing to finance rentals than other types of housing, builders say. As a result of all these factors, many multifamily projects that were originally conceived as condos have been converted to rentals over the past several years.
David Fisher, a vice president of Hovnanian Enterprises Inc. of Red Bank, the state’s largest home builder, said that buying activity has also risen this year because of the improving economy. Low mortgage rates, he said, have led many potential buyers to decide “this is the time.”
“We feel good about the market again in New Jersey,” said Fisher, who is an officer of the New Jersey Builders Association. Hovnanian has several North Jersey communities under construction, including 55-and-up developments in Woodland Park, Montvale and North Caldwell, and a high-rise in Jersey City. It has delayed construction on two properties along the Hudson River waterfront in West New York since the housing bubble burst, but Fisher said that as the market improves, the company may move forward on those next year.
National home building permits are running about 29 percent ahead of last year’s pace, though both national and statewide home building activity remains below long-term averages. And O’Keefe pointed out that the state’s real estate market continues to face challenges, including stagnant home values and a backlog of distressed properties headed for foreclosure.
O’Keefe predicts that builders will start about 22,000 units in the state this year — a big increase from last year’s 18,000 units, and the 13,000 annual average seen from 2009 to 2011, the lowest annual totals since World War II.
With the real estate market reviving, home builder stocks have been on the rise. The Standard & Poor’s home builder index has risen about 50 percent over the past year.
And Hovnanian has said that it expects to return to profitability this year, after years of annual losses. Hovnanian is scheduled to report its second-quarter financial results June 5.
In other related news:
Homebuilder confidence rises in May as home inventory thins
Confidence among U.S. homebuilders improved in May for the first time in five months as buyers rush to take advantage of near record-low mortgage rates.
The National Association of Home Builders/Wells Fargo index of builder confidence rose to 44 from a revised 41 in April, the Washington-based group reported today. The median forecast in a Bloomberg survey called for an increase to 43. Readings below 50 mean more respondents said conditions were poor.
“Builders are noting an increased sense of urgency among potential buyers as a result of thinning inventories of homes for sale, continuing affordable mortgage rates and strengthening local economies,” said Rick Judson, chairman of the trade group and a builder from Charlotte, North Carolina. “This is definitely an encouraging sign.”
Low mortgage rates, a strengthening job market and limited inventories are benefiting builders including PulteGroup Inc. and Lennar Corp. as the housing market contributes to growth this year after emerging as a bright spot in 2012. Gains in housing will help the world’s largest economy move through a global slowdown that is hurting manufacturing.
Another report today showed industrial production declined in April by the most in eight months, reflecting broad-based cutbacks manufacturing that show factories will provide little support for the economy.
Stocks trimmed earlier losses after the builder confidence report. The Standard & Poor’s 500 Index fell less than 0.1 percent to 1,649.52 at 10:02 a.m. in New York. It closed at a record 1,650.34 yesterday.
Output at factories, mines and utilities fell a more-than- forecast 0.5 percent after a revised 0.3 percent gain in the prior month that was weaker than previously reported, a report from the Federal Reserve showed today in Washington. The median forecast in a Bloomberg survey called for a 0.2 percent decline. Manufacturing, which makes up 75 percent of total production, unexpectedly fell 0.4 percent, the third drop in four months.
All three components of the homebuilder survey showed improvement. The group’s gauge of the sales outlook for the next six months rose a point to 53, the highest reading since February 2007, from a revised 52.
Prospective buyer traffic also improved, to 33 in May from 30 in April. An index of current single-family home sales posted a four-point gain to 48 in May.
Estimates of the 51 economists in the Bloomberg survey ranged from 40 to 45. The index, first published in January 1985, averaged 54 in the five years leading to the recession that began in December 2007. It reached a record low of 8 in January 2009.
The confidence survey asks builders to characterize sales as good, fair or poor and to gauge prospective buyers’ traffic. It also asks participants to assess the six-month outlook.
Builder confidence improved in three of the four U.S. regions. Companies in the Northeast had a 10-point jump, from 31 to 41 in May. Confidence improved in the Midwest from 40 to 45 and in the South, rising from 40 to 44. Sentiment fell in the West, from 52 to 41.
Builders started work on 780,000 homes last year, a 28 percent increase from 2011 and the most in four years. Nonetheless, construction of new homes remains below the 2.07 million reached in 2005, the peak of the housing boom.
Inexpensive borrowing costs are helping to attract would-be homebuyers. The average rate on a 30-year, fixed-rate purchase loan was 3.42 percent for the week ending May 9, down from 3.83 percent a year ago, according to McLean, Virginia-based Freddie Mac. The 30-year rate reached a record low of 3.31 percent in November.
Article By Bloomberg News
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