by Calculated Risk on 10/29/2015 03:04:00 PM

From housing economist Tom Lawler:

Several builders have released earnings and had earnings conference calls for the quarter ended September 30, 2015, and one of the key “themes” from builders was that resource “constraints,” specifically with respect to labor, slowed home closings last quarter, and in some cases contributed to weaker than expected net orders. PulteGroup, M/I Homes, Meritage Homes, and MDC Holdings all said, in one form or another, that labor “shortages” – laborers, land development, and various trades – had resulted both in accelerating labor costs and delays in land development and home construction. Most builders said that the main impact in terms of their operating results were lower-than-expected home closings last quarter, though one said that in some markets longer construction timelines appear to have led some buyers to forgo a home purchase.

Most builders noted that both land and labor costs had increased “significantly” of late, though costs of most materials were down. Several of the builders said that they were “able” to increase prices to match increases in overall construction costs in most markets, though at least one builder implied that price hikes in a few markets where costs had increased significantly may have led to fewer home orders.

While only one builder – Meritage -- gave specific numbers on the intra-quarterly patterrn of net home orders last quarter, the numbers were startling. According to a Meritage official, the YOY % change in the company’s net orders was +22% in July and +8% in August, but -15% in September. The official wasn’t sure what prompted the sharp slowdown in home orders in September, but he said he was pretty sure other builders say the same drop-off in sales in September. (Earlier this week Census reported that its preliminary estimate of new home sales fell sharply on a seasonally adjusted basis from August to September.) He also said that based on preliminary numbers it appeared as if net home orders would be up 10 to 15% YOY in October.

Commentary on first-time buyers has been mixed. PultgGroup showed a chart suggesting that 33% of its home deliveries last quarter were to “first-time buyers,” but in response to a question (about prices) an official said that PulteGroup was not so much focused on “entry-level” fist-time buyers but more on “affluent” first-time buyers purchasing homes in the $300,000-$400,000 range. M/I Homes said that it was “watching” for signs that the entry-level home buyer market was improving, and that it would be “ready to respond,” but that at present it had no new product plants designed for that market. Officials did note, however, that in the early part of last decade it sold a “substantial” number of sub-2,000 square-foot homes.

Meritage Homes, in contrast, said that it had seen an improvement in the demand from first-time buyers, and that it planned to increase its offerings of smaller, lower price homes over the next year.

On of the more striking aspects of the most recent “recovery” in single-family housing production has been the incredible low production levels of new single-family homes that are “affordable” to what used to be considered the “typical” first-time buyer.

While builders with a presence in Houston for the most part have downplayed the severity of the weakness in the Houston housing markets, Meritage officials gave some intra-quarterly color that suggested the market had deteriorated significantly over the past few months. Specifically, officials said that company’s sales cancellation rate have “spiked up,” and that sales has fallen “significantly,” over the past 60 days.

Flipping back to the “substantial” increase in labor costs at home builders, the BLS data on average hourly earnings for construction workers (including those involved in building single-family homes) does not show the sort of increases builders are reporting. One would assume, however, that they will soon.

Here is a summary of some selected stats from builders who have reported results for the quarter ended September 30, 2015.

	Net Orders			Settlements			Average Closing  Price ($000s)
Qtr. Ended:	9/15	9/14	% Chg	9/15	9/14	% Chg	9/15	9/14	% Chg
PulteGroup	4,092	3,779	8.3%	4,356	4,646	-6.2%	336.0	334.0	0.6%
NVR	3,258	2,936	11.0%	3,607	3,236	11.5%	380.4	366.2	3.9%
Meritage Homes	1,567	1,500	4.5%	1,712	1,522	12.5%	387.0	358.0	8.1%
MDC Holdings	1,109	1,081	2.6%	1,080	1,093	-1.2%	421.1	370.6	13.6%
M/I Homes	988	892	10.8%	994	985	0.9%	349.0	320.0	9.1%
Total	11,014	10,188	8.1%	11,749	11,482	2.3%	366.0	348.5	5.0%