Builder Confidence Rises

There’s a glimmer of good news from the home building industry. This week, the National Association of Home Builders said that builder sentiment for the new single family home segment grew to 20 in November. While that’s still below 50 – the benchmark for a healthy market, it’s a good sign because it’s the best score since May 2010. The last time the index scored a 50 was during the industry’s golden period in April 2006.

“While this second solid monthly gain on the builder confidence scale is encouraging, the overall measure remains quite low due to the many challenges that home building continues to face with regard to the high number of foreclosures, the difficulties of obtaining construction financing and accurate appraisals, and the restrictive lending environment that is discouraging potential buyers,” said Bob Nielsen, NAHB Chairman and a home builder from Reno, Nev, in a release. “These problems must be addressed so that housing can contribute to economic and job growth the way it has in the past.”

Unemployment and a depressed economy have shattered consumer confidence and decreased the number of home buyers in the market. If that wasn’t bad enough, lenders implemented stricter policies making it difficult for buyers to get loans despite historic low mortgage rates. Builders have also been plagued by the onslaught of underwater homes in the market. Sale prices for new homes plummeted as the market became flooded with inventory.

The number of people buying new homes dropped to its lowest in half a century, according to the Associated Press, and the sale numbers this year are not expected to be any better. But, NAHB’s chief economist David Crowe said in a release that builder confidence is expected to continue growing heading into 2012 because of regions that are faring well. Hopefully, his words will ring true.

National Realtor® Association Predicts Better 2012

The housing market in 2012 is expected to take baby steps toward improvement, according to Lawrence Yun, chief economist at the National Association of Realtors®. “Tight mortgage credit conditions have been holding back homebuyers all year, and consumer confidence has been shaky recently,” Yun said in a press release. “Nonetheless, there is a sizeable pent-up demand based on population growth, employment levels and a doubling-up phenomenon that can’t continue indefinitely.”

According to the Ocean County Register, among Yun’s predictions are:

• Home prices to rise 2 percent to 3 percent next year, 3 percent in 2013, 4 percent in 2014.
• Sale of previously occupied homes will climb 4 percent to 5 percent in 2012.
• Rent would rise 3 percent in 2012 and 3.5 percent in 2013 and 2014.

So, for those on the fence, this may be the time to make that investment of a lifetime before prices and mortgage rates start an upward move. With the expected hike in rents, it might make more sense to buy into a mortgage and build equity.

Home Prices to Drop Further

Since the glory days of 2006, home prices have dropped 31 percent, according to S&P/Chase-Shiller Index. And they have yet to hit the ultimate bottom, said Scott Simon of Pacific Investment Management Co. According to Bloomberg, Simon says that prices will slip 6 to 8 percent more before bottoming out. Hopefully, the numbers won’t be worse than that. A 15 to 20 percent drop would be a “dire situation,” Simon told Bloomberg. That would mean nearly half of homeowners would owe more in mortgages than what their property is worth.

Housing Starts Down in October

Builders broke ground on fewer single family homes in October, according to the Commerce Department, a sign that the market is still struggling. Starts dropped 7.3 percent to a 610,000 annual rate in October, according to economists surveyed by Bloomberg News. Analysts peg 1.2 million as a healthy number for the market. While home building declined, building permits for future construction jumped nearly 11 percent. The double-digit growth was triggered by an increase in apartment permits, according to the Associated Press. At 30 percent, apartment permits have seen their highest increase in three years. Because of uncertain economic times, a battered housing market and strict lending practices, renting is becoming the more preferred option for consumers.

“Given continued constraints on homeownership and rising rents across the country, the trend towards multi-unit construction is one that we expect to continue going forward,” James Marple, senior economist at TD Economics, said to the AP.

While a bump in construction is good news for the economy, the drop in new home starts doesn’t bode well for the industry. Builders are probably waiting for demand and prices to pick up before unveiling new inventory in the market.