Home Sales, Lending on the Increase

According to the National Association of Home Builders (NAHB), the U.S. Census Bureau and the U.S. Department of Housing and Urban Development, newly built, single-family home sales rose 9.6 percent to a seasonally adjusted annual rate of 468,000 units in January from an upwardly revised pace of 427,000 units the previous month. This is the strongest sales pace since July 2008.

In addition, bank lending for land development and construction is increasing, according to recent reports. After hitting a 14-year low early last year, the Federal Deposit Insurance Corp. released data in February that showed that the outstanding balance on loans for land acquisition, development and construction rose in the fourth quarter to $209.9 billion, compared with $206 billion in the third quarter. While that’s a relatively small gain, economists say that if the overall balance is growing, it means that originations of new loans are likely rising even faster:

• It was the third consecutive quarter of growth, a sign that the supply crunch for new construction homes could ease in coming months.

• The increase in lending would spur even more construction and possibly cause prices on existing homes to decrease, according to the Wall Street Journal; prices have been rising rapidly in the last two years, which is good news for sellers, but the short inventory levels have priced many buyers out of the market.

• Last year, the average price of a new home was $322,100, up 10.2 percent from 2012 and the highest annual figure since the Census Bureau began tracking new-home prices in 1963.

• Builders started construction on 618,000 single-family homes last year, in contrast to the typical annual starts of one million units since 2000.

The latest increase in construction lending “is an encouraging signal,” said David Crowe, chief economist for the NAHB, which forecasts a 33 percent increase to 822,000 single-family home starts this year. But lending remains far from its peak, as outstanding land and construction loans topped out at $631.8 billion in the first quarter of 2008.

“We still have a long way to go to get back to a normal flow of credit to builders,” Crowe said. While it can take from six months to more than two years for an increase in lending to show up in the housing supply – depending on whether the loan is used for construction or land acquisition and development – a pickup in building and a more balanced market could boost the economy and kick the housing recovery into a new gear.