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Builder Confidence Edges Up

Builder confidence in the market for newly built, single-family homes edged higher for a third consecutive month in September, according to the latest National Association of Home Builders/Wells Fargo Housing Market Index (HMI), released on Wednesday.

The HMI rose one point to 19 this month, its highest level since May of 2008. The HMI survey gauges and categorizes builders' sales expectations for single-family homes for the next six months as “good,” “fair” or “poor.” The survey also asks builders to rate traffic of prospective buyers as “high to very high,” “average” or “low to very low.” Scores for each component are then used to calculate a seasonally adjusted index where any number over 50 indicates that more builders view sales conditions as good than poor. NAHB has been conducting the Housing Market Index survey for more than 20 years.

“Builders are seeing some improvement in buyer demand as a result of the first-time home buyer tax credit, and low mortgage rates and strong housing affordability have also helped to revive some optimism,” noted Joe Robson, chairman of the National Association of Home Builders (NAHB) and a home builder from Tulsa, Okla.

Jobson stated, “However, the window is now basically closed for being able to start a new home that can be completed in time for buyers to take advantage of the tax credit before it expires at the end of November, and builders are concerned about what will keep the market moving once the credit is gone."
The $8000 first-time home-buyers credit is currently in effect until November 30; buyers must close on the purchase of their home by that date to qualify for the credit. Jobson said that he hopes Congress moves to extend the time-frame for the credit to continue attracting new buyers.

“Today’s report indicates that builders are starting to see some glimmers of light at the end of the tunnel in terms of improving sales activity,” said NAHB Chief Economist David Crowe. “However, the fact that the HMI component gauging sales expectations for the next six months slipped backward this month is a sign of their awareness that this is a very fragile recovery period and several major hurdles remain that could stifle the positive momentum."

Crowe said the "hurdles" include the expiration of the tax credit, as well as lack of credit available for housing production loans and low appraisals "that are sinking one quarter of all new-home sales." He said these concerns must be addressed for the housing recovery we need to boost economic growth.

Two out of three of the HMI’s component indexes recorded gains in September. The index gauging current sales conditions rose two points to 18, while the index gauging traffic of prospective buyers rose one point, to 17. Meanwhile, the index gauging sales expectations for the next six months declined one point, to 29.

All four regions posted gains in their HMI readings for September. The region showing the HMI reading with the biggest improvement was the Midwest, where a three-point gain brought its HMI to 19, the highest level since July of 2007. The Northeast posted a two-point gain to 24, the South posted a two-point gain to 19, and the West posted a one-point gain to 18.

However, in a separate report released on Thursday by NAHB, the organization also states that new single-family home production has slowed for August due to the deadline of the first-time home buyer tax credit, according to number released by the U.S. commerce Department.

A 3% decline in single-family housing starts for August essentially erased the previous month’s gain, bringing production back to a 479,000-unit annual rate. Single-family permits also edged downward in August, by two-tenths of a percent to a seasonally adjusted annual rate of 462,000 units, ending what had been a four-month run of gains.

Meanwhile, multifamily housing starts, which tend to display greater volatility on a month-to-month basis, rose 25.3% from an extremely low level in the previous month, to a seasonally adjusted annual rate of 119,000. Permits issued for multifamily housing rose 16% from an all-time low in July, to an annual rate of 117,000 units.

Regionally speaking, combined single- and multifamily housing starts were mixed. The Northeast gained 23.8%, the Midwest gained .9%, the South declined 2.4%, and no change was reported in the West. Combined permits were also mixed, with a gain of 14.3% in the Northeast and 7.2% in the South. The Midwest registered a decline of 5.7% and the West reported a decline of 5.6% for combined permits.

Crowe said that together, the challenges of the tax credit expiring, the lack of credit for production loans, and inappropriately low appraisals "threaten to completely stifle the upward momentum we’ve seen in the first half of 2009.”

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Wednesday, 15 July 2020

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