Recession? What recession? Builders have high hopes for 2020

Homebuilders are headed into 2020 in the best mood in years.

Low interest rates and good economy are driving more buyers to their doors, and worries about a possible recession have subsided.

“What a great time to be in our industry,” said Sheryl Palmer, CEO of Arizona-based Taylor Morrison Homes, a major builder in North Texas. “Each year we think we only have another year or two because a recession is looming.

“I just don’t see that,” Palmer said. “We are going to have some bumps. But I think we have a long road ahead.”

Just finishing the housing industry’s best year since the Great Recession, builders have some reason to be more upbeat.

Almost 70,000 builders and housing sector professionals are gathered in Las Vegas this week for the industry’s annual confab. Attendance at the International Builders show is up from only about 42,000 people during the recession.

But the turnout is still below the more than 100,000 people who came to the gathering in 2005 before the housing market crash.

The Dallas Builders Association says that its membership has grown more than 40% since the recession. “At the bottom of the market, we were around 900 members and have since rebounded to nearly 1,300,” said Phil Crone, the local builders association’s executive director.

He said the ranks of North Texas builders have still not recovered since the economic downturn of a decade ago.

“When I started at the Dallas BA in 2006, we had close to 2,000 members,” Crone said. “A major contributor is the consolidation we’ve seen in the market with both builders and suppliers.

“The top 30 builders have a much larger share now than before the downturn.”

More than eight out 10 private builders across the country who make up the bulk of the home construction market expect an increase in sales this year, said Carl Reichardt, a securities analyst with BTIG LLC.

“Only 6% of the folks we surveyed thought their business would be down in the next year,” Reichardt said. “More than 50% thought they would grow double digits.”

Nationwide home starts are forecast to grow only about 4% in 2020 but that’s double the rate of 2019’s increase.

In North Texas, the country’s top homebuilding market, analysts are looking for another increase in building this year after a 2% rise in starts in 2019.

“We are forecasting about 36,000 starts for 2020,” said Ted Wilson, principle with Dallas-based Residential Strategies. “If the value builders find ways to continue to ramp up production of under $250,000 housing, starts might begin to close in on the 40,000 level.”

That’s still below the 50,000 home starts the area saw before the recession.

A surge in home sales in D-FW and around the country has carried builders into the New Year with higher expectations than a year ago when buyers had pulled back from the market.

Lower mortgage costs brought shoppers back to the home subdivisions in the second half of 2019 and they’ve kept coming.

“There was no rest after the end of last year,” said Liesel Cooper, a regional president for builder Century Communities Inc. “January started with a bang in all of our markets.

“The spring selling season is not in the spring it’s now in January,” Cooper said.

Mark Boud, the chief economist for housing industry research firm Metrostudy Inc., is expecting a recession no sooner than 2022.

“It won’t be a housing-led recession,” he said. “The job losses won’t be nearly as severe.”

Boud said unlike in the last recession, when housing began the downturn oversupplied, there is a shortage this time.

The only excesses in inventory are at the top of the market, he said.

“That’s what we see in all price ranges over $500,000,” Boud said. “We are increasingly top-heavy as we go up in prices.

“In the lower price ranges, there are more sales closings than construction,” he said. “We actually have a level of pentup demand of over 6 million homes across the nation.”

Even if his predictions of a recession ahead prove true, Boud said don’t look for a big housing market correction.

“We are not really forecasting a huge drop in prices,” he said. “It will come down a little bit, but nowhere near the crash we experienced in 2008.”

Metrostudy estimates that nationwide housing is only about 4% overvalued, compared with more than 25% before the last housing crash.

“We are a little bit overvalued in 2020 but probably not that much because mortgage rates have dropped so much in the last six months.”