Author: Chad Symens

January 21, 2015

Led by solid gains in single-family housing production, nationwide housing starts rose 4.4 percent to a seasonally adjusted annual rate of 1.089 million units in December, according to newly released data from the U.S. Commerce Department.  For the year, overall housing starts topped 1 million units.

“Today’s figures continue to be in line with our recent surveys, as builders have been becoming increasingly optimistic,” said Kevin Kelly, chairman of the National Association of Home Builders (NAHB) and a home builder and developer from Wilmington, Delaware.

“With overall starts ending the year above 1 million units for the first time since 2007, we expect this momentum to carry forward in 2015,” said NAHB Chief Economist David Crowe.  “A growing labor market and strengthening economy will spur steady growth in single-family housing production in the year ahead.”

Single-family housing production rose 7.2 percent to a seasonally adjusted annual rate of 728,000 in December while multifamily starts edged 1 percent lower to 361,000 units.

Combined single-family production was up in three out of four regions in December.  The Northeast posted a 12.5 percent gain, the South was up 8.8 percent and the West registered a 5.8 percent increase.  The Midwest posted a 13.3 percent decline.

Overall, permit issuance was down 1.9 percent in December to a rate of 1.032 million.  Single-family permits rose by 4.5 percent to 667,000 units while multifamily permits fell 12 percent to a rate of 365,000 units.

Regionally, permits were mixed in December.  The Midwest and South posted gains of 6.7 percent, respectively, while the Northeast and West dropped 16.8 percent and 20.5 percent.

Source: National Association of Home Builders

January 21, 2015

The 55+ housing market fared quite well in 2014, and 2015 should be no different, according to industry experts at a press conference held today at the National Association of Home Builders (NAHB) International Builders’ Show (IBS) in Las Vegas.

“The 55+ housing market has been one of the healthiest segments of the overall housing market, and is likely to remain that way over the next several years,” said Paul Emrath, NAHB’s vice president of survey and housing policy research.  “When you look at age-restricted single-family starts, there were as many in the first half of 2014 as in all of 2012.  And going forward, the steady rise in the 55 and over population will signal an increased need for housing to accommodate that group.”

Emrath also noted that builder confidence has steadily increased over the past several years.  “NAHB’s 55+ Housing Market Index (HMI), a survey of members that measures builder and developer confidence for that market, has regularly posted year-over-year gains.”

Builders and developers say they have seen an increase in not only the number of people who are generally interested in 55+ housing, but also in the number of people who are actually making the move to purchase a new home.  “We are seeing more consumers actually make the decision to buy a new home as they are able to sell their current home at an acceptable price,” said Steve Bomberger, chairman of NAHB’s 50+ Housing Council and president of Benchmark Builders Inc. in Wilmington, Delaware.  “We are busier now than ever before.  And I don’t think it’s going to slow down anytime soon.”

“Consumers in this market are looking for a home that accommodates their specific needs, and 55+ builders and developers are able to create homes and communities that address these needs,” said Timothy McCarthy, vice chairman of NAHB’s 50+ Housing Council and managing partner of Traditions of American in Radnor, Pennsylvania.  “As the economy continues to improve, so does our overall business.  Builders in this market have the opportunity to have tremendous success since the population we are serving is so vast.”

Source: National Association of Home Builders 

A strengthening U.S. dollar works well for retailers who are almost exclusively selling in the U.S. and buying their product abroad. Jan Kniffen, CEO of J.Rogers Kniffen Worldwide Enterprises, spoke on CNBC this week about the effect a stronger U.S. dollar will be for retailers. “Retailers who only sell here but buy in other countries will benefit the most. Who are we talking about? Dollar Stores, Macy’s, Target, Kohl’s, J.C. Penneys.”

The main benefit for these retailers is that they purchase product from other countries and re-price product each time they place an order, so orders are less expensive each time the U.S. dollar grows stronger.

The same retailers who benefit from falling U.S. energy costs will benefit from the strong U.S. dollar. “The domestic retailers who are not high end and more middle market will benefit from falling gas prices as their customers have more money to spend.”

Source: CNBC

January 26, 2015

Cupid has some tricks up his sleeve this year with plans to shower Americans with jewelry, candy and a special night out.  According to the National Federation’s Valentine’s Day Consumer Spending Survey, the average person celebrating Valentine’s Day will spend $142.31 on candy, flowers, apparel and more, up from $133.91 last year.  Total spending is expected to reach $18.9 billion, a survey high.

“It’s encouraging to see consumers show interest in spending on gifts and Valentine’s Day related merchandise – a good sign for consumer sentiment as we head into 2015,” said NRF President and CEO Matthew Shay.  “Hoping to draw in eager shoppers, retailers will offer unique promotions on gifts, meal options at restaurants and even experiences.”

While most (53.2%) plan to buy candy for the sweet holiday, spending a total of $1.7 billion, one in five (21.1%) plans to buy jewelry for a total of $4.8 billion, the highest amount seen since NRF began tracking spending on Valentine’s gifts in 2010.

Additionally, 37.8 percent will buy flowers, spending a total of $2.1 billion, and more than one-third (35.1%) will spend on plans for a special night out, indlucing movies and restaurants, totaling $3.6 billion.  Celebrants will also spend nearly $2 billion on clothing and $1.5 billion on the gift that keeps on giving: gift cards.

The survey found nine in 10 (91%) plan to treat their significant others/spouses to something special for the consumer holiday, with plans to spend an average of $87.94 on them, up from $78.09 last year.  Additionally, 58.7 percent will spend an average of $26.26 on other family members and $6.30 on average – which equates to a whopping $703 million on pint-sized gifts of all varieties.

“It’s great to see consumers coming out of their shell this year, looking to spend discretionary budgets on those they love once again, though I fully expect many to continue to look for ways to cut costs where they can.  While many will splurge, some will still look for simple and affordable ways to show their appreciation for friends and family and celebrate in a way they are most comfortable with.”

Discount (35.2%) and department stores (36.5%) will be among the most visited locations for those looking for the perfect Valentine’s Day gift, as will specialty stores (19.4%) and florists (18.7%).  One-quarter (25.1%) say they will shop online and 13.3 percent will shop at a local or small business to find something unique for their loved one.

It seems women are in for the biggest treat this Valentine’s Day.  Men will spend nearly double what women plan to spend ($190.53 versus $96.58 on average, respectively.)  Additionally, adults 25 to 34 will outspend other age groups at an average of $213.04; 35 to 44 year olds will spend an average of $176.21 and 18 to 24 year olds will spend an average of $168.95.

Source: National Retail Federation

January 23, 2015

The Conference Board Leading Economic Index (LEI) for the U.S. increased 0.5 percent in December to 121.1, following a 0.4 percent increase in November, and a 0.6 percent increase in October.

“December’s gain in the LEI was driven by a majority of its components, suggesting the short-term outlook is getting brighter and the economy continues to build momentum,” said Ataman Ozyildirim, Economist at The Conference Board.  “Still, a lack of growth in residential construction and average weekly hours in manufacturing remains a concern.  Current economic conditions measured by the coincident indicators show employment and income gains are helping to keep the U.S. economy on a solid expansionary path despite some weakness in industrial production.”

The Conference Board Coincident Economic Index (CEI) for the U.S. increased 0.2 percent in December to 111.4, following a 0.5 percent increase in November, and a 0.3 percent increase in October.

The Conference Board Lagging Economic Index (LAG) for the U.S. increased 0.3 percent in December to 115.0, following a 0.3 percent increase in November, and no change in October.

Source: The Conference Board

January 20, 2015

A strengthening labor market, low interest rates, improving mortgage availability and growing pent-up demand will help to significantly boost single-family housing production in the year ahead and move the housing recovery to higher ground, according to economists speaking at the International Builders’ Show in Las Vegas today.

With economic growth near 4 percent for the last half of 2014 and employment gains averaging more than 250,000 per month last year, NAHB Chief Economist David Crowe said these are the primary factors that have helped consumer confidence jump back to pre-recession levels.

“The signs point to a more robust year for housing,” Crowe said.  “Household balance sheets are returning to normal levels, home owners’ equity is increasing and significant pent-up demand is rising.  More than 7 million existing home sales were postponed or lost during the downturn; and while some are lost forever, we should see some catch-up.”

The Forecast

NAHB is projecting 993,000 total housing starts in 2014, up 6.7 percent from last year’s total of 930,000 units. 

Single-family production is expected to rise 26 percent in 2015 to 804,000 units.  “While a good beginning, this is still well below a normal level of 1.3 to 1.4 million single-family starts,” Crowe said.

On the multifamily front, NAHB is anticipating 358,000 starts in 2015, up 2 percent from 352,000 last year.

The sale of new single-family homes is expected to hit 564,000 this year, a 29.3 percent increase above last year’s 436,000 in sales.

Meanwhile, residential remodeling activity is expected to register a 3 percent gain this year over 2014.

The ongoing housing recovery will see single-family starts steadily climb from 49 percent of normal production at the end of the third quarter of 2014 all the way up to 90 percent of normal by the end of 2016, Crowe said.  Examining the recovery on a state level, by the end of 2016, the top 40 percent of states will be back to near normal production levels, compared to the bottom 20 percent, which will still be below 75 percent.

Where are All the New Households?

David Berson, chief economist at Nationwide Insurance, said the number of new household formations was far fewer in the current economic expansion than in previous recoveries.

“Given the job growth we’ve seen in 2014, there should have been better household formations,” he said, adding that the slower pace may be because “the real acceleration in job growth has occurred just recently – in the last six months.”

As the economy and job growth continue to strengthen in 2015, Berson said this will be a “significant factor to encourage people who have doubled up to move out on their own.”

Moreover, he noted that the real slowdown in household formations has come from the Millennials, who have suffered disproportionately from stagnant wage growth and student debt.  However, he added that this key demographic is getting older and ready to set down roots.  “The leading edge are new in their young 30s,” said Berson.  “Homeownership desire is much higher for those who are in their 30s than those in their 20s.”

A Rising Economy Lifts Housing

Freddie Mac Chief Economist Frank Nothaft also foresees a good year for housing.

“We’re projecting 3 percent economic growth in 2015, which would only be the second year in the last decade that we’ve seen growth at that level,” said Nothaft.  “A stronger economy supports a rise in household formation and home buying.”

Not quite as bullish as NAHB, Nothaft expects that housing starts will rise about 15 percent in 2015, and that home sales will be up 4 percent, which would be the best year for home sales since 2007.  He added that nationwide home prices this year should increase about 3.5 percent to 4 percent above last year’s level.

With 30-year mortgages currently running at about 3.75 percent, Nothaft called them “dirt cheap” and said he expects rates to rise this year but remain at affordable levels.

“If we see economic growth running at 3 percent at an annualized rate, the Federal Reserve should begin to push up short-term interest rates by the second half of 2015,” said Nothaft.  “We see mortgage rates going up to 4.5 percent on the high side at the end of this year, going from dirt cheap to cheap.  Overall, affordability for buyers in most markets will be well maintained in the context of strong job and income growth.”

Source: National Association of Home Builders

January 21, 2015

The multifamily market has had strong demand in recent years and is set to remain that way in 2015 despite certain headwinds that could affect the industry, said panelists during a press conference at the National Association of Home Builders (NAHB) International Builders’ Show (IBS) in Las Vegas.

The number of multifamily apartments forecast to be built is likely to reach a sustainable level that is higher than the levels of production in the past.  As the industry reaches that new plateau, the pace of construction is likely to level off in 2015 and into 2016.

“The multifamily industry is strong and producing more units than in previous cycles,” said NAHB Chief Economist David Crowe.  “The industry has shown dramatic increases in construction since the recession, but the level of increase will moderate as we approach equilibrium.  We are forecasting that 358,000 units will be developed in 2015 and 361,000 units in 2016.  One of the indicators for our forecast is NAHB’s Multifamily Production Index, which is a survey of our members’ attitudes toward the market.  They have been telling us that the market is very strong and is expected to stay that way for the forseeable future.”

Although Dr. Crowe and other panelists are optimistic about the future of the multifamily housing market, there are still challenges that face the industry such as increasing costs and availability of labor.  But demand for apartments is strong enough for developers to proceed in most markets, the panelists noted.

One of the markets in particular within the multifamily industry that has strong demand is affordable rental housing.  “There are many families in America that have a great need for affordable housing, said Mike Costa, president and CEO of Highridge Costa Housing Partners LLC in Gardena, California.  “We have a long waiting list for our apartments at all of our communities.  There is a need for us to be building more.”

Source: National Association of Home Builders

January 20, 2015

Builder confidence in the market for newly built single-family homes declined one point to 57, according to the latest National Association of Home Builders/Wells Fargo Housing Market Index released today.  This marks the third straight month that the index has hovered in the upper 50s range.

“After seven months above the key 50 benchmark, builder sentiment is reflecting the gradual improvement that is occuring in many markets throughout the nation,” said NAHB Chairman Kevin Kelly, a home builder and developer from Wilmington, Delaware.

“January’s HMI reading is in line with our forecast as we head into the new year,” said NAHB Chief Economist David Crowe.  “Steady economic growth, rising consumer confidence and a growing labor market will help the housing market continue to move forward in 2015.”

Derived from a monthly survey that NAHB has been conducting for 30 years, the NAHB/Wells Fargo Housing Market Index gauges builder perceptions of current single-family home sales and sales expectations for the next six months as “good,” “fair” or “poor.”  The survey also asks builders to rate traffic of prospective buyers as “high to very high,” average” or “low to very low.”  Scores from each component are then used to calculate a seasonally adjusted index where any number over 50 indicates that more builders view conditions as good than poor.

The HMI component gauging current sales conditions remained unchanged at 62 in January while the index measuring expectations for future sales dropped four points to 60 and the component gauging traffic of prospective buyers fell two points to 44.

Looking at the three-month averages for regional HMI scores, the West rose by four points to 66, the Midwest registered a three-point gain to 57 and the Northeast was up two points to 47.  The South dropped two points to 58.

Source: National Association of Home Builders

Lowe’s has announced plans to hire 30,000 employees in its US stores for Spring 2015. These seasonal jobs will be focused on customer service, and most employees will work 20 or more hours per week. The company is hiring and training new employees on a market-by-market basis. Hiring has already begun in the warmer climate states of Florida, California, Texas and Arizona.

 “As spring arrives, our stores are stocked with products homeowners use for their indoor and outdoor projects. To help make shopping and selection easier, we want our stores staffed with knowledgeable employees who’ll provide exceptional service for customers,” said Scott Purvis, Lowe’s vice president of human resources operations.

 Home Depot hired 80,000 seasonal workers in winter/spring 2014, and analysts predict to see Home Depot follow Lowe’s with its own hiring uptick this year.

 Lowe’s has more than 1,800 home improvement stores.

Resource: Retailing Today

January 22, 2015

After months of delay and a failed bid by Dollar General, Family Dololar shareholders agreed to be acquired by Dollar Tree in a deal that creates a combined company with more than 14,000 locations, estimated annual sales of $19 billion and compelling growth opportunities.

Approval of the deal creates a new competitive dynamic in the world of extreme value retailing with the combination of Dollar Tree and Family Dollar making for a more formidable competitor to Dollar General and its nearly 12,000 stores.

Family Dollar operated 8,101 stores, which averaged about 7,200 square feet and were supported by 11 distribution centers at the end of the company’s first quarter on November 29, 2014.  More than three-fourths of the company’s sales are derived from food and consumable categories.  By comparison, Dollar Tree operated 5,077 stores, including 205 locations in Canada, which averaged about 9,000 square feet and were supported by 10 distribution centers at the end of the company’s third quarter on November 1, 2014.  About half of Dollar Tree’s sales come from food and consumable categories and the company also operates a format called “Deal$,” where it sells merchandise for more than $1.

The deal is expected to close in March.  About 74% of the shares were voted in favor of the deal.

“Today’s vote of approval by Family Dollar shareholders represents a crucial step toward combining Dollar Tree, North America’s leading fixed price point discount retailer, with Family Dollar, a leading multi-price point retailer with a 50 plus year history of serving low and middle income customers,” said Bob Sasser, Dollar Tree’s CEO.  “By adding Family Dollar to our portfolio of brands, Dollar Tree will soon operate more than 13,000 stores in 48 states and five Canadian provinces with annual sales exceeding $18 billion.  This merger enhances our geographic footprint and diversifies our business model.  We intend to operate and grow both banners.”

Family Dollar chairman and CEO Howard Levine said he was pleased with the outcome of the vote.

“The Family Dollar Board of Directors and management team have worked diligently to advance the best interests of all of the company’s stockholders, and we are grateful for the support we received for the merger proposal,” Levine said.  “We are also very appreciative of Family Dollar’s talented and committed team members, who have remained focused on serving our customers throughout this process.  We look forward to completing the transaction with Dollar Tree and remain excited about the opportunity that this combination will create for our stockholders, team members, customers and other stakeholders.”

Dollar General emerged as a bidder for Family Dollar after Family Dollar and Dollar Tree announced their acquisition deal on July 27, 2014.  Dollar General’s all-cash offer for $80 a share appeared superior on the surface to Dollar Tree’s cash and stock offer valued at $76.85 a share, but concerns quickly emerged about the number of store divestitures that would be required to secure regulatory approval because of the extensive overlap between the Dollar General and Family Dollar footprint.  Family Dollar indicated that between 3,500 and 4,000 stores were “problematic” based on Federal Trade Commission feedback while Dollar General indicated regulatory approval could be secured with the divestiture of no more than 1,500 stores.

In the end, Family Dollar shareholders voted for the certainty of the tie-up with Dollar Tree over the richer but potentially problematic offer from Dollar General.

Source: Retailing Today