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About


The Atlanta Fed's SouthPoint offers commentary and observations on various aspects of the region's economy.

The blog's authors include staff from the Atlanta Fed's Regional Economic Information Network and Public Affairs Department.

Postings are weekly.


May 5, 2014

Southeast Housing Update: Traffic, Sales, Prices Up

The Atlanta Fed conducts a monthly poll of southeastern broker and builder contacts in an effort to detect emerging real estate trends prior to the release of the official statistics. Besides our standard questions on key metrics, we will occasionally add a special question or two with the goal of better understanding the mechanics behind the emerging trends.

We recently received results from the he March poll, and instead of discussing all of the results, I wanted to highlight just a few of the findings:

  • The number of brokers and builders reporting an increase in buyer traffic rebounded in March. This rebound supports the notion from earlier reports that weather conditions were in fact weighing down buyer traffic.
  • More brokers reported an increase in home sales in March than in February. At the same time, more builders reported a decline in home sales from February to March.
  • For the first time since February 2011, more builders reported that inventory levels had increased than decreased. However, the opposite was true for brokers, most of whom continued to report a decline in inventory levels.
  • The vast majority of brokers and builders continued to report that home prices increased from the year-earlier level.

Based solely on these poll results, it’s difficult to draw any sort of clear conclusion about what activity might look like going forward.

At this point, our special questions come in handy. We posed two special questions this month to our business contacts. Brokers were asked if they expect to see a “snapback” in the home sales trend, and builders were asked if they expect to see a “snapback” in the home building trend (see the charts). (We defined “snapback” as above-normal growth that would roughly put the industry on par with the previous level and help to at least partially recoup lost activity from the first few months of the year.)

Will there be a 'snapback' in the trend in home building?


Will there be a 'snapback' in the trend in home sales?


You can see from the poll results that only 22 percent of brokers and 11 percent of builders expect to see a snapback in home sales and home building activity. The majority of respondents—56 percent of brokers and 68 percent of builders—indicated that they expect to see growth from the current level, but not a snapback. The remaining respondents indicated that they don’t expect to see a snapback, either because they expect the weakness to persist or because activity never slowed down in their market.

The results of the special questions aligned nicely with the results of the outlook questions that we posed. In the final analysis, most brokers and builders in the Southeast indicated that they expect growth to be flat to slightly up from the year-earlier level.

Note: March poll results are based on responses from 41 residential brokers and 19 homebuilders and were collected April 7–16, 2014. The housing poll's diffusion indexes are calculated as the percentage of total respondents reporting increases minus the percentage reporting declines. Positive values in the index indicate increased activity, and negative values indicate decreased activity.

Detailed results from the construction and real estate survey are available. If you are a real estate broker or homebuilder and would like to participate in this poll, please let us know by emailing RealEstateCenter@atl.frb.org.

Photo of Jessica DillBy Jessica Dill, senior economic research analyst in the Atlanta Fed's research department


April 16, 2014

Beige Book: Warming Economy Accompanies Spring’s Thaw

Eight times a year, each of the 12 Reserve Banks gathers anecdotal information on current economic conditions in its district through reports from Bank and branch directors and interviews with key business contacts, economists, market experts, and other sources. Their findings are reported in the Summary of Economic Conditions, also known as the Beige Book. The report is published on the Federal Reserve Board of Governors' website about two weeks prior to each Federal Open Market Committee meeting.

The first sentences of the national summary and each Bank's report often receive much attention because the lead sentence tends to summarize economic conditions in that region.

Here is a compilation of the first sentence of the national summary and each Reserve Bank’s report:

  • National: Reports from the twelve Federal Reserve Districts suggest economic activity increased in most regions of the country since the previous report. (A previous SouthPoint post also mentioned the weather’s effect on overall economic conditions.)
  • Boston: The First District economy continues to expand moderately, according to business contacts, although growth rates vary across sectors and firms.
  • New York: Economic activity in the Second District rebounded since the last report, as the harsh winter weather abated.
  • Philadelphia: Aggregate business activity in the Third District grew at a moderate pace during this current Beige Book period.
  • Cleveland: On balance, economic activity in the Fourth District declined slightly in the past six weeks.
  • Richmond: The Fifth District economy expanded moderately since our last report.
  • Atlanta: On balance, the Sixth District economy expanded at a modest pace from mid-February through March.
  • Chicago: Growth in economic activity in the Seventh District picked up in March, and contacts generally maintained their optimistic outlook for 2014.
  • St. Louis: Business activity in the Eighth District has declined slightly since our previous report.
  • Minneapolis: The Ninth District economy continued to grow at a moderate pace since the last report.
  • Kansas City: The Tenth District economy grew moderately in March, and most contacts were optimistic about future activity.
  • Dallas: The Eleventh District economy grew at a moderate pace over the last six weeks.
  • San Francisco: Economic activity in the Twelfth District continued to improve moderately during the reporting period of mid-February through early April.

As you can see, almost all districts are experiencing the same level of economic activity.

Here are some notable highlights from the Atlanta Fed's contribution to the Beige Book:

Consumer spending and tourism

  • District merchants reported an uptick in activity from mid-February through March following sluggish sales in January, which were widely attributed to the severe winter weather. Light motor vehicle sales grew modestly during the time period.
  • Hospitality contacts in areas negatively affected by the adverse winter weather saw improvements in activity.

Real estate and construction

  • Brokers reported home sales were mixed. Inventory levels continued to fall on a year-over-year basis, and the majority of contacts reported that home prices remained ahead of the year-earlier level.
  • The majority of builders reported that construction activity and new home sales were ahead of the year-earlier level. The majority of contacts continued to report modest home price appreciation.
  • District brokers noted that demand for commercial real estate continued to improve. Construction activity continued to increase at a modest pace from last year.

Manufacturing

  • Manufacturers reported increased activity across the region from mid-February through March. Significant improvements were cited in production and new orders.

Banking and finance

  • Bankers noted an increase in loan demand.

Employment

  • District payroll growth remained constrained from mid-February through March.

Prices and wages

  • Nonlabor input costs increased very slowly, with a few noted exceptions, including rising costs for developed land, construction materials, and food. Profit margins remained tight across most industries as contacts continued to report very little pricing power.
  • Contacts continued to indicate little wage pressure outside of some high-skilled positions.

The next Beige Book will be published June 4.

Photo of Teri GaffordBy Shalini Patel, an economic policy analysis specialist in the Atlanta Fed's research department


March 25, 2014

Southeast Housing Update: Whether It’s the Weather

Since the beginning of the year, housing indicators have been less robust than expected. Existing home sales, as reported by the National Association of Realtors, have declined on a year-over-year and month-over month basis for the past few months. Housing starts, as reported by the U.S. Census Bureau, have declined from a year ago for the last two months. The big question seems to be why. A popular explanation is that the weather is responsible for all the recent ills in housing. Let’s turn to the Atlanta Fed’s monthly poll of Southeast broker and builder business contacts to see whether factors besides the weather are being overlooked.

Our contacts’ responses indicate they have picked up on the slowing pace of growth in home sales, buyer traffic, and construction activity. The majority of contacts continued to indicate an increase in sales on a month-over-month and year-over-year basis, although fewer Southeast builder and broker contacts reported an increase in home sales relative to the prior month.

Reports on buyer traffic were mixed. The diffusion index of responses is near zero, which means roughly the same number of contacts reported increased activity as reported decreased activity. Though most comments indicated that winter weather conditions slowed buyer traffic, a few comments noted that web inquiries during the same period increased. Steady web activity is consistent with buyer interest remaining constant and waiting out the weather to look at properties in person.

Overall, builders continued to report an increase in construction activity in February, but fewer builders reported an increase this month than in the past few months. To better understand what was behind this weakness, we added several special questions to our most recent poll.

We asked contacts if the recent spurts of severe winter weather had an impact on their business. More than three-fourths of our builder contacts and just shy of three-fourths of our broker contacts indicated that, indeed, the gusts of severe winter weather had in fact had a slight to significant impact on their business (see the chart). Brokers and builders explained that the severe weather events slowed home sales (for example, delayed closings), buyer traffic, and the delivery of new homes to the market.

Did the recent spurts of severe weather have an impact on your business?

We also asked our contacts several questions about investor buying activity, since investors have been a driving force for improvements in many housing markets, and their exit from the market could account for some of the slowing in housing markets. It appears investor participation has waned somewhat based on our poll results (see the chart).

Southeast Composition of Home Buyers

Digging a little deeper to better understand the variation across markets, we learned that more than half of brokers indicated that sales to investors were flat or had increased on a year-over-year basis; only 46 percent indicated a decline. So, while investor participation may have fallen at a regional level, investors are still very present in certain markets across the Southeast (see the chart).

Southeast Home Sales to Investors

Given the results to our inquiries, you might conclude that weather and waning investor interest account for much of the weakness in recent housing data. However, our contacts reported that this was not necessarily the case. While the weather events and pullback of investor buying in some markets may be contributing to the slowdown, contacts indicated that higher home prices, higher mortgage rates, and limited inventory were the most significant factors contributing to the weakness in recent housing data (a recent Real Estate Research post discusses changes in affordability). Perhaps more importantly, the majority of broker and builder contacts indicated that they do not expect the recent weakness in housing to persist (see the table).

Factors Influencing Recent Slower Growth in the Housing Market

So, to what extent were the official numbers affected by the harsh weather? The answer is still up in the air. Based on our latest survey results, it appears that a confluence of factors contributed to the recent weakness but that these headwinds will not be strong enough to derail the continuing recovery in housing.

Note: February poll results are based on responses from 42 residential brokers and 23 homebuilders and were collected March 3–12, 2014. The housing poll's diffusion indexes are calculated as the percentage of total respondents reporting increases minus the percentage reporting declines. Positive values in the index indicate increased activity, and negative values indicate decreased activity.

If you are a real estate broker or homebuilder and would like to participate in this poll, please let us know by sending a note to RealEstateCenter@atl.frb.org.

Photo of Jessica DillBy Jessica Dill, senior economic research analyst, and

Photo of Carl HudsonCarl Hudson, director of the Center for Real Estate Analytics, both in the Atlanta Fed's research department


February 27, 2014

Southeast Housing Update: Modest Improvement Continues

According to the latest results from our Southeast housing market poll, contacts continued to indicate that growth remained positive. More than half of our Southeast builder and broker contacts reported that sales increased modestly on a year-over-year basis (see the chart).

January 2014 Southeast Home Sales vs. a Year Earlier

Many builders indicated that buyer traffic had increased on a year-over year-basis. Reports from brokers were mixed (see the chart).

January 2014 Southeast Buyer Traffic vs. a Year Earlier

The majority of our Southeast builder panel indicated that inventory levels had remained unchanged from year-earlier levels, although most of our Southeast broker panel indicated that inventory levels had fallen from year-earlier levels (see the chart).

January 2014 Southeast Home Inventory vs. a Year Earlier

Most brokers and builders continued to report that home prices had increased slightly in January compared to year-ago levels (see the chart).

January 2014 Home Price vs. a Year-ago

Two-thirds of brokers reported that the amount of available credit either met or exceeded demand (see the chart).

Brokers: How available do you perceive mortgage finance to be in your market?

Similarly, two-thirds of builders indicated that the amount of available credit met or exceeded demand (see the chart).

Builders: How available do you perceive mortgage finance to be in your market?

It’s worth noting that while this picture hasn’t drastically improved over time, it hasn’t deteriorated much either despite the recent implementation of mortgage regulations (for example, thequalified mortgage rule, which went into effect on January 10). We plan to keep a close eye on this question as the year unfolds.

Residential construction update
Our builder contacts indicated that construction activity increased slightly on a year-over-year basis but remained unchanged month over month. Nearly three out of four builders reported that activity was in line with their plan for the period.

You may recall from previous SouthPoint posts that builders have faced challenges securing acquisition and development financing for lot development (here) and that builders identified lot availability as one of the biggest risks to their outlook (here). We posed a special question to our builder panel in an effort to gain more insight into the current lot inventory situation. Here are a few of the main takeaways:

  • Overwhelmingly and regardless of the market, builders reported that finished lots are extremely hard to come by in desirable locations. With few finished lots in the most desirable areas, many builders have moved to B and C locations for vertical construction. (B locations have become the new A locations, and C locations have become the new B locations.)
  • As a result of the increased demand for finished lots in good locations, contacts indicated that lot prices were appreciating rather quickly, and that this rate of price appreciation was problematic because the added cost on the front end does not align with the valuation that can be achieved on the back end.
  • A few builders reported that they were in the process of developing new lots in A locations, but many more contacts noted that it was cost-prohibitive to develop raw land in any location at this time. The latter group reported that private acquisition and development money was available to fill the void that banks have left but noted that it was more expensive and would significantly raise the cost of development to the point where it becomes no longer viable. No one on the builder panel seemed to think that it would be viable to develop raw land in B and C locations at this point.

Outlook on sales and construction activity
Over the next three months, most builders and brokers expect home sales to increase. Although expectations remain fairly positive, contacts were slightly less optimistic about sales growth relative to their year-earlier responses (see the charts).

Southeast Builder Home Sales Expectations Next 3 Months

Southeast Broker Home Sales Expectations Next 3 Months

Nearly two-thirds of builder contacts expect construction activity to increase over the next three months. With that said, builders’ outlooks appear to be slightly less optimistic relative to their year-earlier responses.

Southeast Builder Construction Expectations Next 3 Months

Note: January poll results are based on responses from 42 residential brokers and 23 homebuilders and were collected February 3–12, 2014. The housing poll's diffusion indexes are calculated as the percentage of total respondents reporting increases minus the percentage reporting declines. Positive values in the index indicate increased activity, and negative values indicate decreased activity.

If you are a real estate broker or homebuilder and would like to participate in this poll, please let us know by sending a note to RealEstateCenter@atl.frb.org.

Photo of Jessica DillBy Jessica Dill, senior economic research analyst in the Atlanta Fed's research department


May 5, 2014

Southeast Housing Update: Traffic, Sales, Prices Up

The Atlanta Fed conducts a monthly poll of southeastern broker and builder contacts in an effort to detect emerging real estate trends prior to the release of the official statistics. Besides our standard questions on key metrics, we will occasionally add a special question or two with the goal of better understanding the mechanics behind the emerging trends.

We recently received results from the he March poll, and instead of discussing all of the results, I wanted to highlight just a few of the findings:

  • The number of brokers and builders reporting an increase in buyer traffic rebounded in March. This rebound supports the notion from earlier reports that weather conditions were in fact weighing down buyer traffic.
  • More brokers reported an increase in home sales in March than in February. At the same time, more builders reported a decline in home sales from February to March.
  • For the first time since February 2011, more builders reported that inventory levels had increased than decreased. However, the opposite was true for brokers, most of whom continued to report a decline in inventory levels.
  • The vast majority of brokers and builders continued to report that home prices increased from the year-earlier level.

Based solely on these poll results, it’s difficult to draw any sort of clear conclusion about what activity might look like going forward.

At this point, our special questions come in handy. We posed two special questions this month to our business contacts. Brokers were asked if they expect to see a “snapback” in the home sales trend, and builders were asked if they expect to see a “snapback” in the home building trend (see the charts). (We defined “snapback” as above-normal growth that would roughly put the industry on par with the previous level and help to at least partially recoup lost activity from the first few months of the year.)

Will there be a 'snapback' in the trend in home building?


Will there be a 'snapback' in the trend in home sales?


You can see from the poll results that only 22 percent of brokers and 11 percent of builders expect to see a snapback in home sales and home building activity. The majority of respondents—56 percent of brokers and 68 percent of builders—indicated that they expect to see growth from the current level, but not a snapback. The remaining respondents indicated that they don’t expect to see a snapback, either because they expect the weakness to persist or because activity never slowed down in their market.

The results of the special questions aligned nicely with the results of the outlook questions that we posed. In the final analysis, most brokers and builders in the Southeast indicated that they expect growth to be flat to slightly up from the year-earlier level.

Note: March poll results are based on responses from 41 residential brokers and 19 homebuilders and were collected April 7–16, 2014. The housing poll's diffusion indexes are calculated as the percentage of total respondents reporting increases minus the percentage reporting declines. Positive values in the index indicate increased activity, and negative values indicate decreased activity.

Detailed results from the construction and real estate survey are available. If you are a real estate broker or homebuilder and would like to participate in this poll, please let us know by emailing RealEstateCenter@atl.frb.org.

Photo of Jessica DillBy Jessica Dill, senior economic research analyst in the Atlanta Fed's research department


April 16, 2014

Beige Book: Warming Economy Accompanies Spring’s Thaw

Eight times a year, each of the 12 Reserve Banks gathers anecdotal information on current economic conditions in its district through reports from Bank and branch directors and interviews with key business contacts, economists, market experts, and other sources. Their findings are reported in the Summary of Economic Conditions, also known as the Beige Book. The report is published on the Federal Reserve Board of Governors' website about two weeks prior to each Federal Open Market Committee meeting.

The first sentences of the national summary and each Bank's report often receive much attention because the lead sentence tends to summarize economic conditions in that region.

Here is a compilation of the first sentence of the national summary and each Reserve Bank’s report:

  • National: Reports from the twelve Federal Reserve Districts suggest economic activity increased in most regions of the country since the previous report. (A previous SouthPoint post also mentioned the weather’s effect on overall economic conditions.)
  • Boston: The First District economy continues to expand moderately, according to business contacts, although growth rates vary across sectors and firms.
  • New York: Economic activity in the Second District rebounded since the last report, as the harsh winter weather abated.
  • Philadelphia: Aggregate business activity in the Third District grew at a moderate pace during this current Beige Book period.
  • Cleveland: On balance, economic activity in the Fourth District declined slightly in the past six weeks.
  • Richmond: The Fifth District economy expanded moderately since our last report.
  • Atlanta: On balance, the Sixth District economy expanded at a modest pace from mid-February through March.
  • Chicago: Growth in economic activity in the Seventh District picked up in March, and contacts generally maintained their optimistic outlook for 2014.
  • St. Louis: Business activity in the Eighth District has declined slightly since our previous report.
  • Minneapolis: The Ninth District economy continued to grow at a moderate pace since the last report.
  • Kansas City: The Tenth District economy grew moderately in March, and most contacts were optimistic about future activity.
  • Dallas: The Eleventh District economy grew at a moderate pace over the last six weeks.
  • San Francisco: Economic activity in the Twelfth District continued to improve moderately during the reporting period of mid-February through early April.

As you can see, almost all districts are experiencing the same level of economic activity.

Here are some notable highlights from the Atlanta Fed's contribution to the Beige Book:

Consumer spending and tourism

  • District merchants reported an uptick in activity from mid-February through March following sluggish sales in January, which were widely attributed to the severe winter weather. Light motor vehicle sales grew modestly during the time period.
  • Hospitality contacts in areas negatively affected by the adverse winter weather saw improvements in activity.

Real estate and construction

  • Brokers reported home sales were mixed. Inventory levels continued to fall on a year-over-year basis, and the majority of contacts reported that home prices remained ahead of the year-earlier level.
  • The majority of builders reported that construction activity and new home sales were ahead of the year-earlier level. The majority of contacts continued to report modest home price appreciation.
  • District brokers noted that demand for commercial real estate continued to improve. Construction activity continued to increase at a modest pace from last year.

Manufacturing

  • Manufacturers reported increased activity across the region from mid-February through March. Significant improvements were cited in production and new orders.

Banking and finance

  • Bankers noted an increase in loan demand.

Employment

  • District payroll growth remained constrained from mid-February through March.

Prices and wages

  • Nonlabor input costs increased very slowly, with a few noted exceptions, including rising costs for developed land, construction materials, and food. Profit margins remained tight across most industries as contacts continued to report very little pricing power.
  • Contacts continued to indicate little wage pressure outside of some high-skilled positions.

The next Beige Book will be published June 4.

Photo of Teri GaffordBy Shalini Patel, an economic policy analysis specialist in the Atlanta Fed's research department


March 25, 2014

Southeast Housing Update: Whether It’s the Weather

Since the beginning of the year, housing indicators have been less robust than expected. Existing home sales, as reported by the National Association of Realtors, have declined on a year-over-year and month-over month basis for the past few months. Housing starts, as reported by the U.S. Census Bureau, have declined from a year ago for the last two months. The big question seems to be why. A popular explanation is that the weather is responsible for all the recent ills in housing. Let’s turn to the Atlanta Fed’s monthly poll of Southeast broker and builder business contacts to see whether factors besides the weather are being overlooked.

Our contacts’ responses indicate they have picked up on the slowing pace of growth in home sales, buyer traffic, and construction activity. The majority of contacts continued to indicate an increase in sales on a month-over-month and year-over-year basis, although fewer Southeast builder and broker contacts reported an increase in home sales relative to the prior month.

Reports on buyer traffic were mixed. The diffusion index of responses is near zero, which means roughly the same number of contacts reported increased activity as reported decreased activity. Though most comments indicated that winter weather conditions slowed buyer traffic, a few comments noted that web inquiries during the same period increased. Steady web activity is consistent with buyer interest remaining constant and waiting out the weather to look at properties in person.

Overall, builders continued to report an increase in construction activity in February, but fewer builders reported an increase this month than in the past few months. To better understand what was behind this weakness, we added several special questions to our most recent poll.

We asked contacts if the recent spurts of severe winter weather had an impact on their business. More than three-fourths of our builder contacts and just shy of three-fourths of our broker contacts indicated that, indeed, the gusts of severe winter weather had in fact had a slight to significant impact on their business (see the chart). Brokers and builders explained that the severe weather events slowed home sales (for example, delayed closings), buyer traffic, and the delivery of new homes to the market.

Did the recent spurts of severe weather have an impact on your business?

We also asked our contacts several questions about investor buying activity, since investors have been a driving force for improvements in many housing markets, and their exit from the market could account for some of the slowing in housing markets. It appears investor participation has waned somewhat based on our poll results (see the chart).

Southeast Composition of Home Buyers

Digging a little deeper to better understand the variation across markets, we learned that more than half of brokers indicated that sales to investors were flat or had increased on a year-over-year basis; only 46 percent indicated a decline. So, while investor participation may have fallen at a regional level, investors are still very present in certain markets across the Southeast (see the chart).

Southeast Home Sales to Investors

Given the results to our inquiries, you might conclude that weather and waning investor interest account for much of the weakness in recent housing data. However, our contacts reported that this was not necessarily the case. While the weather events and pullback of investor buying in some markets may be contributing to the slowdown, contacts indicated that higher home prices, higher mortgage rates, and limited inventory were the most significant factors contributing to the weakness in recent housing data (a recent Real Estate Research post discusses changes in affordability). Perhaps more importantly, the majority of broker and builder contacts indicated that they do not expect the recent weakness in housing to persist (see the table).

Factors Influencing Recent Slower Growth in the Housing Market

So, to what extent were the official numbers affected by the harsh weather? The answer is still up in the air. Based on our latest survey results, it appears that a confluence of factors contributed to the recent weakness but that these headwinds will not be strong enough to derail the continuing recovery in housing.

Note: February poll results are based on responses from 42 residential brokers and 23 homebuilders and were collected March 3–12, 2014. The housing poll's diffusion indexes are calculated as the percentage of total respondents reporting increases minus the percentage reporting declines. Positive values in the index indicate increased activity, and negative values indicate decreased activity.

If you are a real estate broker or homebuilder and would like to participate in this poll, please let us know by sending a note to RealEstateCenter@atl.frb.org.

Photo of Jessica DillBy Jessica Dill, senior economic research analyst, and

Photo of Carl HudsonCarl Hudson, director of the Center for Real Estate Analytics, both in the Atlanta Fed's research department


February 27, 2014

Southeast Housing Update: Modest Improvement Continues

According to the latest results from our Southeast housing market poll, contacts continued to indicate that growth remained positive. More than half of our Southeast builder and broker contacts reported that sales increased modestly on a year-over-year basis (see the chart).

January 2014 Southeast Home Sales vs. a Year Earlier

Many builders indicated that buyer traffic had increased on a year-over year-basis. Reports from brokers were mixed (see the chart).

January 2014 Southeast Buyer Traffic vs. a Year Earlier

The majority of our Southeast builder panel indicated that inventory levels had remained unchanged from year-earlier levels, although most of our Southeast broker panel indicated that inventory levels had fallen from year-earlier levels (see the chart).

January 2014 Southeast Home Inventory vs. a Year Earlier

Most brokers and builders continued to report that home prices had increased slightly in January compared to year-ago levels (see the chart).

January 2014 Home Price vs. a Year-ago

Two-thirds of brokers reported that the amount of available credit either met or exceeded demand (see the chart).

Brokers: How available do you perceive mortgage finance to be in your market?

Similarly, two-thirds of builders indicated that the amount of available credit met or exceeded demand (see the chart).

Builders: How available do you perceive mortgage finance to be in your market?

It’s worth noting that while this picture hasn’t drastically improved over time, it hasn’t deteriorated much either despite the recent implementation of mortgage regulations (for example, thequalified mortgage rule, which went into effect on January 10). We plan to keep a close eye on this question as the year unfolds.

Residential construction update
Our builder contacts indicated that construction activity increased slightly on a year-over-year basis but remained unchanged month over month. Nearly three out of four builders reported that activity was in line with their plan for the period.

You may recall from previous SouthPoint posts that builders have faced challenges securing acquisition and development financing for lot development (here) and that builders identified lot availability as one of the biggest risks to their outlook (here). We posed a special question to our builder panel in an effort to gain more insight into the current lot inventory situation. Here are a few of the main takeaways:

  • Overwhelmingly and regardless of the market, builders reported that finished lots are extremely hard to come by in desirable locations. With few finished lots in the most desirable areas, many builders have moved to B and C locations for vertical construction. (B locations have become the new A locations, and C locations have become the new B locations.)
  • As a result of the increased demand for finished lots in good locations, contacts indicated that lot prices were appreciating rather quickly, and that this rate of price appreciation was problematic because the added cost on the front end does not align with the valuation that can be achieved on the back end.
  • A few builders reported that they were in the process of developing new lots in A locations, but many more contacts noted that it was cost-prohibitive to develop raw land in any location at this time. The latter group reported that private acquisition and development money was available to fill the void that banks have left but noted that it was more expensive and would significantly raise the cost of development to the point where it becomes no longer viable. No one on the builder panel seemed to think that it would be viable to develop raw land in B and C locations at this point.

Outlook on sales and construction activity
Over the next three months, most builders and brokers expect home sales to increase. Although expectations remain fairly positive, contacts were slightly less optimistic about sales growth relative to their year-earlier responses (see the charts).

Southeast Builder Home Sales Expectations Next 3 Months

Southeast Broker Home Sales Expectations Next 3 Months

Nearly two-thirds of builder contacts expect construction activity to increase over the next three months. With that said, builders’ outlooks appear to be slightly less optimistic relative to their year-earlier responses.

Southeast Builder Construction Expectations Next 3 Months

Note: January poll results are based on responses from 42 residential brokers and 23 homebuilders and were collected February 3–12, 2014. The housing poll's diffusion indexes are calculated as the percentage of total respondents reporting increases minus the percentage reporting declines. Positive values in the index indicate increased activity, and negative values indicate decreased activity.

If you are a real estate broker or homebuilder and would like to participate in this poll, please let us know by sending a note to RealEstateCenter@atl.frb.org.

Photo of Jessica DillBy Jessica Dill, senior economic research analyst in the Atlanta Fed's research department