Recent data suggests that a more stable, yet leaner, housing market might be ahead for the construction and pool industries.
Housing starts have fluctuated over the past two months. Construction fell 5.6 percent in October, the largest drop in seven months, the Commerce Department reported. Then, just as quickly, building activity in November rose 5.3 percent. Both months’ data surprised analysts.
“The housing market still is fundamentally healthy,” said Dave Wilson, president of the National Association of Home Builders and a custom builder from Ketchum, Idaho. “Many builders sense some tapering off of buyer demand because of resistance to high prices and rising interest rates.”
Regionally, construction rose back to its pre-October levels in the West and Midwest. Construction was down 1.3 percent in the South partly due to higher mortgage rates.
The question is whether or not the downturn is an anomaly or an indication of a growing problem. “Right now, I don’t see any reason to believe the downturn is sustainable,” said Jeff Fausett, president/CEO of Aquatech Corp., a society of pool builders based in Huntington Beach, Calif. “We monitor housing because it’s usually an indicator of what’s going to happen in our business.”
One area of concern seems to be home sales. While new-home sales in October were up year-to-date by 5 percent, the median price of homes has remained stagnant for the most part. November’s figures were not available at press time.
In addition, the number of listed homes last quarter jumped significantly, with “For Sale” signs staying up longer. This is leading analysts to speculate that the market may continue to slow in the next few months.
“We expect housing to start slowing the economy this quarter or the next,” said Edward Leamer, a professor of economics at UCLA’s Anderson School of Business in Los Angeles and director of its Anderson Forecast.
In his recent report, Leamer said a sustained decline in the homebuilding industry in 2006 could cost the nation as many as 500,000 construction jobs.
For its current roster of 165 companies, Aquatech’s Fausett has seen some warning signs. “Our members are saying leads are down about 10 percent from a year ago,” he said. “Nobody feels like the volume of business is down, but their opportunity is down.”
Most home builders, however, have dismissed the notion that a housing “bubble” exists, citing evidence that construction has kept pace with population growth. For the most part, they are right. Still, some public companies, such as D.R. Horton and Pulte, have revved up their stock repurchasing programs rather than investing in land, which has been the norm over the past few years.
For now, Fausett urges caution. “Things aren’t all rosy; prices have flattened,” he said. “Don’t overspend. Don’t get into too much debt. When you get an economy that’s fragile — and our economy is fragile because it’s susceptible to terrorism, to oil prices, to bird flu — you’ve got to be cautious.”