Tag Archive for 'Wells Fargo Securities Group'

Wells Fargo Reports: Construction Spending Continues to Bounce Back

Wells_Fargo_Securities_logoConstruction spending rose 0.6 percent in August, and the prior month’s gain was revised up to 1.4 percent. The data point to solid gains in residential and nonresidential construction during the third quarter.

The Housing Recovery Remains On Track

  • Fears that this past spring’s sudden jump in mortgage rates would derail the housing recovery appear to be misplaced. Private residential construction spending rose 1.2 percent in August, with spending for new multifamily projects surging 3.2 percent, and single-family construction rising 1.6 percent.
  • Improvements, 40 percent of total residential construction, remain restrained, following stronger gains earlier this year.

Nonresidential Construction is Showing Signs of Life

  • Private nonresidential construction spending rose just 0.1 percent in August, following a 3.7 percent jump in July.
  • Private nonresidential spending through the first two months of the third quarter is now up at an 11.4 percent annualized rate. Manufacturing accounts for about 40 percent of the increase, led by gains in industries tied to oil & gas exploration and chemicals. Office and multi-tenant retail are also improving.
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Wells Fargo Reports: New Home Sales Rise Solidly in June

Wells_Fargo_Securities_logoNew home sales rose 8.3 percent in June, helping offset earlier disappointment in existing home sales. While new home sales for the prior two months were revised slightly lower, June’s pace still topped most estimates

By Mark Vitner, Senior Economist and

Anaika R. Khan, Senior Economis

Builders Are Having a Tough Time Keeping Up With Demand

New home sales rose a larger-than-expected 8.3 percent in June to a 497,000-unit annual pace. Sales for the prior two months were revised down by 38,000 units, but both months still show sequential increases, indicating that new home sales are continuing to build momentum.

June’s strong gains in new home sales may allay some concerns that higher mortgage rates are undermining the budding housing recovery. Earlier this week, sales of existing homes posted a 1.2 percent drop for June. The report raised fears about the prospects for first-time home buyers. We noted then that most of the drop in existing sales occurred for homes priced below $100,000. A big part of the drop in existing sales also appears to have been due to a drop in investor purchases, distressed sales and cash purchases. The low end of the existing market has been dominated by institutional investors bent on buying up bargain-priced homes and converting them into rental properties. Most of the desirable existing properties at the low end of the market are now gone, which is good news for home builders. Moreover, the exit of institutional buyers should be good news for first-time buyers, many of which were having difficulty competing with cash offers.

The latest new home sales data seem to confirm these trends. Sales rose in every region of the country except the Midwest, and in every price segment except the $300,000 to $399,000 range, where they fell marginally. Sales of homes priced under $150,000 rose marginally in June and accounted for 10 percent of sales, which is the same percentage they accounted for in the prior month. While the share has dropped from 16 percent in 2011 and 13 percent in 2012, much of the drop is due to the growth in sales in the West, where lot prices and homes tend to be more expensive. The West has seen its share of sales rise from 23.5 percent in 2011 to 26.4 percent through the first six months of this year.

Rising mortgage rates will clearly have an impact on sales. Mortgage purchase applications fell 2.1 percent in mid-July. The figures also show that the contract interest rate on 30-year fixed rate mortgages has risen by nearly 75 basis points over the past year, with much of the gain occurring in the past two months. But even with these increases, mortgage rates remain near historic lows. One way that buyers adapt to rising mortgage rates is to scale back the size of the home they buy. This would be consistent with the small drop in the share of sales accounted for by homes priced over $400,000 during the past two months.

We expect new home sales to hold up relatively well in coming months. Buyer traffic has been strong and builders are having a tough time keeping up with demand. While overall inventories are up 10.3 percent, inventories of completed homes are at all-time lows and, at 3.9 months, overall inventories are lower relative to sales than any time since October 2004.

Source: U.S. Department of Commerce, NAHB, Mortgage Bankers Association and Wells Fargo Securities, LLC

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Wells Fargo Reports: Housing Starts Plunge in April as Weather Holds Back Activity

Wells_Fargo_Securities_logoAfter a blowout report in March, starts plunged 16.5 percent in April, with both single- and multifamily starts tumbling. Permits rose sharply, however, and builders sound downright giddy about sales prospects.

 April’s 16.5 percent plunge in housing starts is less alarming when paired with the 14.3 percent rise in permits reported that month. Inclement weather likely delayed some starts, which should produce a nice rebound in May.


Starts Tumbled Back Below Permits

 After spiking in March, multifamily starts plunged 38.9 percent in April and were responsible for most of the swing in overall starts. Multifamily permits rose nearly 40 percent in April.

Single-Family Starts Dip, But Builders Sound Giddy

 Single-family starts fell 2.1 percent in April, marking the second consecutive monthly drop. Starts had been running ahead of permits, however, so the drop was not a surprise. Permits for single-family homes rose 3.0 percent to a 617,000-unit pace.

 Builder confidence improved in May and the tone of recent builder conferences has been downright giddy. Demand is improving but lots, labor and materials are in short supply.

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Wells Fargo Economics Group Reports: Housing Starts Fall Well Below Estimates in March

Housing starts posted another disappointing pullback in March, falling 5.8 percent. Much of the decline was in the volatile multifamily component, which dropped 16.9 percent. Weather may also still have had an effect. 

Two Disappointing Monthly Reports – Transitory or Trend?

The key spring selling season got off to a disappointing start in March, with housing starts dropping 5.8 percent on the month. The decline in starts was largely concentrated in the volatile multifamily component. Multifamily starts fell 16.9 percent on the month, but the decline is likely due to payback. That said, multifamily starts are up 34.6 percent on a year-ago basis, which is more indicative of the solid underlying trend.

With two consecutive monthly declines, many will insist we are seeing a shift in the underlying trend which is showing gradual progress. That said, we are not throwing in the towel and we still contend the housing market is seeing modest improvement and is in the early stages of stabilization with much of the recent monthly volatility due in part to milder-than-usual weather. With sales being pulled forward in previous months, it is not a surprise to see a pullback. Indeed, according to the NOAA, March was the warmest March on record. Moreover, anecdotal reports from builders and realtors suggest better days are ahead for the industry.

Speaking of builders, according to the NAHB/Wells Fargo Homebuilders Survey, builder sentiment pulled back after six months of improvement. Each component fell on the month, including sales expectations in the next six months and traffic of prospective buyers. On a regional basis, the index was mixed with the South and Midwest posting declines. While builder sentiment in April could be another pessimistic indicator for naysayers, here again, we believe that as a result of the impact of weather, the underlying trend is harder to decipher due to monthly volatility. Similar to starts, the homebuilder survey is seasonally adjusted and the decline is likely due to payback from the string of positive data.

To further make our point, forward looking permits rose 4.5 percent on the month and are up over 30 percent on a year-ago basis. While the gain in permits was concentrated in multifamily, single-family permits are up

17.9 percent over the past year. Before we get ahead of ourselves, it is important to note that the housing market still contends with a number of obstacles, including the oversupply of existing homes, shadow inventory and tight credit conditions. While permits are up, financing is still pretty tough to line up, so the permits are not translating into starts very quickly.

Housing Starts Outlook

Housing starts are expected to rise 16 percent this year, with single family starts rising 11 percent and multifamily starts rising 29 percent. Overall, starts should rise an additional 15 percent in 2013. Even with these gains, however, homebuilding remains well off its long-run trend and as noted on many occasions, any recovery in the housing market will be gradual.