Builder Confidence Remains Fair Despite Building Costs, Appraisal Issues

by Peter Thomas Ricci

New Construction

According to the National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index (HMI), homebuilder confidence remained unchanged in November from October, hitting a reading of 54 after the October figure was revised downward from 55 to 54. The NAHB report has indicated slowly improving builder confidence, but political uncertainty tempered the index’s growth.

“Given the current interest rate and pricing environment, consumers continue to show interest in purchasing new homes, but are holding back because Congress keeps pushing critical decisions on budget, tax and government spending issues down the road,” said NAHB Chairman Rick Judson.

Positive and Negative News
Judson added that low appraisals and still rising construction costs took a toll on confidence as well, but the index remains over 50 for the sixth consecutive month – any reading over 50 means more builders feel positively about the market than negatively.

“The fact that builder confidence remains above 50 is an encouraging sign, considering the unresolved debt and federal budget issues cause builders and consumers to remain on the sideline,” said NAHB Chief Economist David Crowe.

Meanwhile, housing has seen hiccups in recovery, as a long period of historically low interest rates ends and rates rise, now hitting a two-year high. According to the National Association of Home Builders/Wells Fargo Housing Opportunity Index, as home prices and mortgage interest rates increase, housing affordability is taking a hit, as 64.5 percent of new and existing homes sold in the third quarter were affordable to families earning the U.S. median income of $64,400.

That is down from the 69.3 percent of homes sold that were affordable to median-income earners in the second quarter, and the biggest decline seen in this index since the second quarter of 2004.

“Housing affordability is being negatively affected by a ‘perfect storm’ scenario,” said Judson, who is also a homebuilder in Charlotte, N.C. “With markets across the country recovering, home values are strengthening at the same time that the cost of building homes is rising due to tightened supplies of building materials, developable lots and labor.”

Regional Performance Varied
The HMI index gauging current sales conditions in November held steady at 58. The component measuring expectations for future sales fell one point to 60 and the component gauging traffic of prospective buyers dropped one point to 42.

The HMI three-month moving average was mixed in the four regions. No movement was recorded in the South or West, which held unchanged at 56 and 60, respectively. The Northeast recorded a one-point gain to 39 and the Midwest fell three points to 60.

Builder confidence in the 55-plus housing market, however, showed continued improvement in the third quarter of 2013 compared to the same period a year ago, according to the National Association of Home Builders’ (NAHB) latest 55-plus Housing Market Index (HMI). All segments of the market – single-family homes, condos and multifamily rental – registered strong increases. The single-family index increased 14 points to a level of 50, which is the highest third-quarter number since the inception of the index in 2008 and the eighth consecutive quarter of year-over-year improvements.

There are separate 55-plus HMIs for two segments of the 55-plus housing market: single-family homes and multifamily condominiums. Each 55-plus HMI measures builder sentiment based on a survey that asks if current sales, prospective buyer traffic and anticipated six-month sales for that market are good, fair or poor (high, average or low for traffic). An index number below 50 indicates that more builders view conditions as poor than good.

All of the components of the 55-plus single-family HMI showed considerable growth from a year ago: present sales climbed 16 points to 52; expected sales for the next six months rose 11 points to 53; and traffic of prospective buyers increased 10 points to 43.

The 55-plus multifamily condo HMI posted a gain of 14 points to 37, which is the highest third-quarter reading since the inception of the index. All 55-plus multifamily condo HMI components increased compared to a year ago as present sales increased 15 points to 37, expected sales for the next six months climbed 11 points to 40 and traffic of prospective buyers rose 13 points to 35.

“Right now the positive year over year increase in confidence by builders for the 55-plus market is tracking right along with other segments of the homebuilding industry,” Crowe said. “And like other segments of the industry, the 55-plus market is improving in part because consumers are more likely to be able to sell their current homes, which allows them to buy a new home or move into an apartment that suits their specific needs.”



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