Builders Increase Spec-Home Supply for Spring
In anticipation of a hot spring-buying season, homebuilders are increasing their building of speculative homes, those built without a buyer in place.
Builders had 218,000 homes listed for sale that were either under construction or completed at the end of December – that’s a 17.2 percent increase from a year earlier, the Commerce Department reported this week. That also marks the highest December total of spec homes since 2009.
“It appears that builders are more optimistic, and that’s why they’re building more spec homes,” David W. Berson, chief economist at Nationwide Insurance, told The Wall Street Journal. “But it doesn’t appear that they’re getting ahead of sales, since the number is so low historically.”
Homebuilding is still at low levels so economists and builders aren’t fearing overbuilding at this point, The Wall Street Journal reports. The inventory of new homes remains low — at a supply of 5.5-months in December, still below the 6-month supply that most economists consider healthy for the sector.
Builders’ optimism has been growing, as sales have picked up and more buyer traffic. In December, the pace of new-home sales was at its highest since June 2008.
D.R. Horton, the largest U.S. builder by closings, reported that it had 4,500 completed spec homes by the end of 2014 – about 1,100 more than it did a year ago. The builder also reported a 35 percent increase in sales contracts for its fiscal first quarter ending Dec. 31.
“We are in a strong competitive position for the upcoming spring sales season with a well-stocked supply of land, lots, and homes,” David Auld, D.R. Horton’s president and chief executive, said this week during a recent conference call about earnings with investors.
Source: “Builders Bet on Strong Spring with Speculative Homes,” The Wall Street Journal (Jan. 27, 2015)