Housing still in the dumps

According to Reed Construction Data, the housing market continues to be depressed in most parts of the country amid increasing signs that current activity has hit bottom, although a small amount of further decline is expected in the next few months. No significant improvement from the current starts volume is expected until well into next year. Home affordability is above average and rising, but this is not enough to initiate a market recovery because the confidence to buy a new home has recently worsened rapidly. Some of the key remodeling drivers have also recently soured, but it is not yet clear whether this signal is real or a measurement problem in a chaotic market. Builder margins remain depressed as home prices have declined more than construction costs and unavoidable overhead is spread over a smaller volume. Labor cost inflation has softened and will likely soften a little more, but it has not turned negative in most markets. Similarly, a six-month respite in rising materials costs for residential builders appears to be over. (See Reed Construction Data’s related story entitled, “Construction Inflation Soars in November”.) Suppliers have reduced discounting after production cuts put inventories back in better balance. In addition, costs for materials from commodities priced in still rapidly expanding world markets are relentlessly increasing. The falling value of the U.S. dollar also contributes to commodity inflation. Your comment?