Four years into a recession being touted as the worst since the ’30s, the U.S. housing sector is giving markets something to smile about.
Between August and September 2012, housing starts leapt 15% to a seasonally adjusted annual rate of 872,000, the biggest surge since July 2008.
And it’s likely groundbreakings could increase another 25% in 2013, predicts Kermit Baker, senior research fellow at the Joint Center for Housing Studies at Harvard.
Before you get too excited, though, realize home construction’s still a long way off the 1.6 million unit average highs it’s seen for the last three decades.
Still, it’s among the first positive signs of a real economic recovery. And, coupled with improving sales of existing homes, a bona fide suggestion the U.S. is awakening from a six-year nightmare that began when the subprime crisis bared its teeth.
Who’s buying? U.S. investors who want to take advantage of relatively low prices. In fact, half the people buying distressed homes pay cash, says Benjamin Tal, deputy chief economist at CIBC. They’re buying, renovating and renting for high returns, thanks to a strong rental market.
He estimates these renovations alone have pumped over 300,000 new construction jobs into the U.S. economy.
“This is the beginning of a turning point,” says Tal. “It’s going to be a V-shaped recovery, but if you want to get into the U.S. housing market this is the time.”
Since housing tends to lead an economy both into, and out of, recession, these positive signs provide hope of stronger growth in the U.S. At the very least, it’ll offset some of the weaknesses in other sectors, including manufacturing employment, global trade, and financial services, says Baker.
“Housing numbers look solid,” he adds. “The only discrepancy is when will we get back to the normal 1.6 million unit starts? [It could be as soon as] 2014, or as late as 2017.”
So what’s it all mean for Canada?
Strong U.S. housing starts bode well for resource-rich nations, and Canada supplies lumber, base metals, and other resources. Canadian companies also make finished goods, including appliances, carpeting and flooring, that are bought by U.S. builders.
“We’ve seen lumber prices, production, and valuations of companies in this space rising, and I think this will continue,” forecasts Tal.
In the wake of Hurricane Sandy, which caused US$50 billion in damage, speculators boosted Canadian lumber prices to a 19-month high.
“They’re going to have to rebuild but it always takes some time for the cleanup to be done, so I think the impact on demand of wood consumption is probably going to materialize in the second and third quarter of next year with the rebuilding efforts,” says Resolute Forest Products CEO Richard Garneau.
It’s too early to estimate the value of Canadian forest products that will be used in rebuilding the New York and New Jersey regions, but it’s no stretch to assume the fortunes of lumber companies like West Fraser Timber Co. Ltd. and Canfor Corp. will be called upon to meet pent up demand.
An improving U.S. housing sector also lifts consumer sentiment. When house prices plummet, consumers feel poorer and don’t spend, says Tal. And, even though U.S. home prices are still low compared with early 2008 peaks, homeowners are no longer seeing double-digit declines.
“A stronger U.S. consumer is important for Canada because we export to many of them,” adds Tal.
So while a boom is still a few years away, pockets of growth down south bode well for resources and goods suppliers here.
10 Best U.S. Housing Markets
Metropolitan areas with the strongest single-family housing starts
|9 Months Yr-to-Dt|
|1||Houston-Baytown-Sugar Land, TX||17,934||22,011|
|2||Dallas-Fort Worth-Arlington, TX||11,952||14,607|
|5||Atlanta-Sandy Springs-Marietta, GA||4,646||6,657|
|6||Austin-Round Rock, TX||5,073||6,483|
|9||Las Vegas-Paradise, NV||2,989||4,688|
Source: McGraw-Hill Construction