US housing bust a memory, but recovery incomplete

When US homebuilder Pulte announced earnings last month, it boasted higher profits and a surge in new orders as fresh evidence of an improved American housing market.

But perhaps the most striking aspect of the report was Pulte's bet on the future. The company boosted its budget for land purchases by 27 percent to $1.2 billion for 2013 and 2014.

Still, Pulte chief executive Richard Dugas pledged the group would remain "prudent."

"We are not going to chase volume, but intend to invest intelligently," Dugas said on a conference call with analysts.

Such is the state of the US housing market recovery.

After several years in the post-bubble doldrums, the housing sector is at last beginning to show real signs of a comeback. Discussion among homebuilders has shifted from the lack of activity to shortages in labor, lumber and land that constrain the sector.

But the comeback is the cautious and careful turnaround of an industry whose prior excesses led to the biggest economic downturn since the Great Depression.

The latest data on home sales underscore the rebound. The January reading on a pending homes sales index rose 9.5 percent above the year-ago level and stood at its highest level since April 2010, according to the National Association of Realtors.

Existing-home sales hit an annual pace of 4.92 million in January, more than 400,000 from a year earlier, and new-home sales were up 28.9 percent from 12 months earlier.

But industry officials and analysts are hesitant to break out the champagne just yet.

Most benchmarks of the sector -- whether housing starts or new home sales -- remain well below their levels from before the bust. What's more, investors are cautious given broader uncertainty over the eurozone and ongoing US budget debates in Washington.

Patrick Newport, an economist at IHS Global Insight, estimated the housing market is about four years removed from its low but another two to three years away from truly bouncing back.

"We're off the bottom, but levels are still depressed," Newport said.

Giant US home improvement retailer Home Depot also gave a mixed-bag reading on the market. Even as the company reported Tuesday a 13.9 percent year on year gain in sales in the fourth quarter, to $18.2 billion, it painted a cautious picture of the housing market.

"We continue to believe that the path to recovery will resemble a gradual thawing process," said Home Depot chief executive Frank Blake.

"There will be a workout stage for a couple of years before we hit really the strong recovery stage."

Blake said some indicators of true improvement would be an increase in household formation and housing turnover "significantly above where it is now."

A major facet to the market recovery is the lean state of housing inventories.

The total number of homes on the market in January 2013 stood at 1.74 million, a decline of 25 percent from last year and the lowest level since December 1999, according to NAR data.

Demand is stronger, helped by ultra-low interest rates on mortgage loans.

But tempering that are higher demands on buyers to prove they merit the loans, compared to the high tolerance of financial weaknesses and easy documentation practices before the crash of 2005-2006.

It is not uncommon for a borrower to be asked to prove his employment status multiple times before a loan is granted, said Alex Barron, an analyst at the Housing Research Center.

They're putting people through the ringer," he said. "You've got to show all kinds of documents. It is difficult for a lot of people."

The rising cost of lumber and other construction materials and a tight labor pool in some key markets, are concerns.

Lennar chief executive Stuart Miller called land "the biggest constraining factor" on the rebound, but the biggest worry is a shift in US economic policy.

"The main risk to the recovery is whether interest rates can hang in there," said Barron. "If interest rates start to go up, then I think the recovery will be at risk."