Home Builders’ Sentiment Climbs
There was a flicker of hope from the builders this week. The National Association of Home Builders’ index of builder sentiments climbed from 14 to 18 percent. That’s still mighty below 50 – the benchmark indicative of a positive outlook. But, any improvement is a good sign these days. Only once in the last two years did the index rise more than 20, according to the Associated Press. And the last time it touched 50 was in April 2006 at the height of the housing market’s glory, the story said.
Builders’ confidence took a beating when new home sales plummeted last year. The industry still hasn’t recovered its losses. Problems are compounded by the flood of inventory of existing homes clogging the market. Foreclosures are dragging down prices, affecting the cost of existing and new homes. To add to that, strict lending policies, unemployment and pay cuts are restraining buyers from investing in real estate.
Foreign Investment a Cure?
We reported before about one of the current U.S. housing market trends – buyers from overseas coming to the rescue of homes otherwise sitting idle in the market. Now lawmakers are taking notice. The Wall Street Journal reported this week that two senators are working on a bipartisan bill that would grant residence visas to foreign investors willing to put in at least $500,000 in cash in the U.S. housing market. That money could be spent on one single family home or spread out across properties that they could rent.
“This is a way to create more demand without costing the federal government a nickel,” said Sen. Charles Schumer (D., N.Y.), one of the co-authors, in an interview with the Journal.
Foreign buyers invested approximately $82 billion in the residential market in the year ended March, a $16 billion bump from the previous year, the Journal reported. If the bill goes through, we may see droves of buyers coming in and hopefully helping the market. The provision would allow investors to bring in spouses and children under 18 years of age, but to work they would have to apply for a work visa the regular way. Also, their visa gets taken away if they sell off the property.
Rental Demand Increases
The number of tenant households increased 4 percent in the past year, according to Freddie Mac’s most recent Economic and Housing Market Outlook released this week. Young people, between the ages of 25 and 29, preferring to rent rather than buy, contributed the most to the bump. The numbers were also driven by homeowners, who lost their homes to foreclosures, unemployment and other financial hardships. There’s a huge demand for rental homes these days, which has led to increase in rent prices, and an increasing appetite for new rental units. It has also fueled the demand for construction of apartment buildings, according to Freddie Mac. In the last year, apartment households touched an astounding 1.4 million.
“New construction starts are slowly picking up and multifamily lending appears to be rising as well with this year’s origination volume stronger than 2010’s,” said Frank Nothaft, vice president and chief economist at Freddie Mac in a release. “In part, the rise in originations is related to the low-level of mortgage rates, improving apartment-sector economics, and the return of traditional lenders that had curtailed activity during the recession.”
As the demand grows, rents increase, and mortgage rates dip further, there’s hope that it would drive consumers to buy rather than rent. Until then, we may see a mushrooming of rental units all around us.
Sale of Existing Homes Dropped in September
The National Association of Realtors® said this week that sales of previously occupied homes slipped 3 percent last month to a seasonally adjusted annual rate of 4.91 million homes. That’s considerably off the mark from 6 million, which analysts say indicates a healthy housing market, according to the Associated Press.
Lawrence Yun, chief economist at NAR, said in press release that the market has been stable although at low levels, and there is plenty of room for improvement.
“Existing-home sales have bounced around this year, staying relatively close to the current level in most months,” he said. “The irony is affordability conditions have improved to historic highs and more creditworthy borrowers are trying to purchase homes, but the share of contract failures is double the level of September 2010. Even so, the volume of successful buyers is higher than a year ago and is remaining fairly stable – this speaks to an unfulfilled demand.”
The sales figures were in step with last year’s depressing figures, which were the worst in more than a decade, the AP reported. An unstable economy, unemployment and strict lending practices have forced many first time home buyers off the market.
Housing Starts Soared 15 Percent in September
Construction of new homes in September sprinted at its fastest rate in 17 months to a seasonally adjusted rate of 658,000 units, according to Reuters. That’s beyond analysts’ expectations of 590,000 units. Single family home construction rose 1.7 percent, but construction for multifamily units jumped a whopping 51.3 percent. Although the numbers are still below the rosy figures seen during the glorious days of the market, compared to last year, the numbers are up 10.2 percent, the Reuters story said.