Home Construction & Sales Down

New house under construction

Home Construction & Sales Down
| Published March 25, 2014 |

By Thursday Review staff

Those folks who work in the construction and building trades—and those who analyze such things—were right: despite the good news that consumer confidence has risen among people in the U.S., all those weeks of bad weather during the long winter of Polar Vortexes, Nor’easters and monster snowstorms had a negative effect.

Not only was new home construction down in January, it fell even further in February—its lowest point in five months. New home sales were down a full one percent over last February, and down 3.3 percent overall. In the Midwest and the Northeast things were much worse. Northeastern states collectively saw a dramatic drop of 32.4 percent, the biggest decline since October and November of 2012, when hurricane Sandy pummeled coastal states like New Jersey, New York and Delaware.

The recent winter took its toll on the economy in general, inhibiting home construction and preventing potential home buyers from going outside. In some of the hardest hit areas of the country, both construction and sales suffered mightily. Builders, remodelers and contractors were forced to stay home, or work only in very short stretches; supplies were bottlenecked due to weather-related shipping problems; and real estate agents reported experiencing entire weeks without a single home showing or call.

The harsh winter weather is largely to blame for the most recent slump, but in reality the process had already begun when the Federal Reserve began tinkering with mortgage rates six months earlier. Higher interest rates mean fewer people are willing to borrow, and that usually has an immediate effect on the biggest of the big ticket items: houses.

But car sales also fell dramatically, and stayed low, through months of extreme cold and icy conditions. Many car dealers say that had days and weeks of few shoppers, and a few car dealerships closed for days at a time. And like home construction, shipments and deliveries were adversely affected by dangerous weather and closed roads.

Many retail segments of the economy dropped measurably even before Christmas had arrived as the first stages of the winter storms hit. The data breach at retail giant Target also has the effect of inhibiting some retail sales, even as online orders saw their best year ever.

Home sales are seen by many economists as a crucial indicator of overall consumer confidence. As the weather improves over the next days and weeks, many experts say both construction and sales should begin again to climb.

Home construction is also important for its wide multiplier effect: home building involves many layers of skilled employment, including roofers, framers, electricians, plumbers, and pavers, as well as landscape workers. Home construction also creates demand for materials from a variety of sources, which generates thousands of new orders.

Related Thursday Review articles:

Winter Stalls Car Sales; Thursday Review; February 3, 2014