The U.S. home building industry is finally coming off its lowest volumes ever, albeit in fits and slow starts.
New single family home starts fell 6.5 percent in July from the previous month but are still up 17 percent from a year ago. Building permits, considered a more dependable future indicator, rose 4.5 percent month-to-month and are up 23 percent from a year ago. \(Related: Housing Starts Drop, Permits Jump; Jobless Claims Rise.\)
Much of the demand is coming from potential buyers who have been shut out of the lower-priced, distressed market by avid, all-cash investors. The big public builders, almost across the board, reported huge jumps in new orders in the first half of this year. Smaller builders are still hampered by lack of credit to build and therefore meet the demand. Construction loans nearly ground to a halt after the latest housing crash.
Just last month PNCBank announced it was getting out of the construction loan business for home builders entirely. PNC had acquired the business when it bought Raleigh’s RBC bank, which was apparently already winding down the unit.
“Builders do still rank this as one of the confounding issues that limits their ability to respond to the budding demand,” said National Association of Home Builders chief economist David Crowe. “It is especially important for builders to be able to build enough spec homes to respond to immediate demand, since trade-up buyers in particular are waiting until their home is sold before signing a contract, and then they need a home very soon.”
That may be about to change. This week Wells Fargo announced it is forming a homebuilder banking group to serve clients on the east coast, Texas and the Midwest. The team will offer “a comprehensive suite of financial solutions,” according to a release, including project and corporate financing facilities, and a referral network to treasury management, insurance, mortgage and capital markets products. (Related: Homebuilders Most Confident in More Than 5 Years.)
“It’s not as if we were all in then, all out now, all in again,” said Wells Fargo’s head of Homebuilder Banking, Bird Anderson, in an interview.
“It is more of a sense of the opportunities within an improving market that we can be more entrepreneurial in looking for new business opportunities,” Bird added, citing increased demand in the homebuilding sector in many markets.
Texas homebuilder Bruno Pasquinelli of CB Jeni Homes is still relying on private capital, hoping to deliver 400 homes per year, but he says he is beginning to see a credit thaw.
“My understanding is that several banks in our market wanted to get more volume out the door," Pasquinelli said. "Simple economics — they need to take market share or they will only grow at the rate that housing is growing.”
The view, however, is not so bright further east in Columbia, South Carolina, where homebuilder Wade McGuinn says financing is still scarce. (Related: Home Price Bottom or Bubble?)
“The biggest issue in recovering markets is that lot inventory has equalized, and the banks, because of the Feds, won't lend money for land development. This will make all recovering markets ripe for the picking by publicly held companies who are not in need of bank financing,” McGuinn said. “This ultimately could be the death nail in the coffin of the small and family builders, who although they have money and credit, won't be able to compete.”
Like the rest of the nation’s housing market, improvement will come slowly and locally, with some areas seeing improved demand and improved access to credit, while others will be slower to rise from the ashes.
“It feels like there’s a little bit more credit supply out there, but not a lot of credit supply out there,” Wells Fargo’s Bird admitted.
For now, that will have to be enough.
—By CNBC's Diana Olick
—CNBC Realty Check producer Stephanie Dhue contributed to this report.