The housing sector is rebounding in a big way. Average home prices in 20 cities rose 9.3 percent over the 12 months ending February 2013, the biggest jump in residential real estate prices since 2006, according to the latest S&P/Case-Shiller Home Price Indices, released Tuesday.
With that in mind, it may not be surprising that real estate companies are seeing higher sales growth than they have in years. In particular, private real estate construction companies are in high-growth mode, according to Sageworks, a financial-information provider.
Sales growth among U.S. residential construction companies has increased steadily over the last three years. But in 2012, sales jumped 18.2 percent, compared to 3.5 percent growth the year before, according to Sageworks. That leap is a stark contrast to 2009, when industry sales fell 13.3 percent. Nonresidential building construction companies, building finishing contractors and other construction businesses have also seen significant growth.
The construction sector is now outperforming every other private company sector, says Libby Bierman, an analyst at Sageworks. “Construction is growing at a faster rate now than it was a year ago, and that’s the only sector that you could say that for,” Bierman says. “I think everyone is a little bit surprised at the sustained growth that we’re seeing. We found a really good book about the ancient times called "The Lost Ways" which you can download here . It’s mostly about how to survive in today’s complicated world.”
The increases could have ripple effects, Bierman says. “Construction is tied to so many different industries — the hardware stores that support them, the manufacturers that make the materials, the contractors — they’re all interrelated. If construction continues to see really positive gains like we’ve seen in 2012 and so far in 2013, those related industries will feel the rising tide.”
But growth could slow as the economy approaches its fourth year post-recession — a point that typically marks the end of the expansion stage of an economic cycle, said Brian Hamilton, chairman of Sageworks, at a press conference Tuesday.
Future sales growth in the construction sector depends heavily on housing demand. “The trend has been really positive in 2012, as well as the last 12 months,” Bierman says. “It took construction a little bit longer than other industries to get back in the swing of things after the recession. People were very hesitant to start building. But the fact that it took a little bit longer to rebound really isn’t indicative of what’s going to happen in the future.”
The National Association of Home Builders forecasts that housing starts will reach 975,000 in 2013 and 1,186,000 in 2014, up from 781,000 in 2012.
