New Home Orders Rise
Looks like the market for new homes is on the mend. Orders for new homes increased in the quarter ended December, bringing a much needed cheer to the home building industry.The news has made the chief executives for some of the nation’s biggest home building companies cautiously optimistic about a market upswing in 2012, according to Reuters.
Leading the brigade is Richard Dugar, CEO of Pulte, America’s second largest home builder. According to Reuters, Dugar said that “favorable long-term demographic drivers and improvements in a number of underlying housing data reports provide reasons for optimism heading into 2012.”
It’s a much needed relief. The home building industry has been hard hit by the flood of foreclosures in the market. Bad lending practices, weak economy, rise in unemployment and overbuilding during the market’s glory days contributed to the doom. Builders have been stuck with inventory and have had to lower prices on homes because of market conditions. But things seem to be turning around, albeit slowly.
Builders such as D.R. Horton and Lennar saw an upswing in orders. So did M.D.C. Holdings Inc, which saw new orders skyrocket 30 percent in January. Beazer Homes, another giant in the industry, reported a sharp increase in recent orders.
Foreclosures Continue to Hurt
While there was good news on the new home front, prices on existing homes fell more than expected in November. Home values in 20 cities dropped 3.7 percent in November, according to the S&P/Case-Shiller Index. That decrease is after a 3.4 percent decline in October. Economists surveyed by Bloomberg were expecting a 3.3 percent drop.
Cautious consumers holding off on the most important purchase of their lifetime are contributing to the price decline and a vicious cycle. Without buyers, there’s no recovery. Without some sort of a recovery sign, buyers are apprehensive despite lucrative mortgage rates.
“We’ve seen home prices take a turn for the worse after showing some signs of a bottom, and we do think that there is more downside from here,” said Ellen Zentner, a senior economist at Nomura Securities International Inc. in New York, according to Bloomberg. Zenter had correctly predicted the price decline.
“If you get stronger jobs and wage growth, it’ll go far in alleviating some of the pipeline foreclosures that have yet to happen,” Zenter said.
Of the 20 cities, 18 showed a year-over-year decline. Atlanta was the worst hit with a 11.8 percent price fall, while Detroit showed 3.3 percent uptick, the biggest increase.
Strict Lending Standards Hurting Market
Does the key to the housing market’s recovery lie in loosening borrowing regulations?
That’s what a few officials and industry experts believe.
Tight lending practices and lack of credit is hurting the housing market’s recovery in America, said Jonathan Miller of Miller Samuel Inc.
Miller, the president and CEO of the New-York based appraiser, appeared on Bloomberg Television’s “Surveillance Midday” with Tom Keene.
Mortgage rates for 30-year plans have dropped to a record low of 3.87 percent , according to Freddie Mac. But, that hasn’t sent buyers rushing in to tap into those rates. Home loan borrowing is expected to decline in 2012, according to Bloomberg. That prediction makes us realize that low rates on their own can’t do much. Borrowers need access to capital to take advantage of the rates.
Last month, Fed Chairman Ben S. Bernanke told Congress that tight lending policies are hurting the housing market and the economy’s recovery.
There’s also the problem of declining home values. Piling foreclosures are dragging down home values and clogging the market with inventory. The foreclosure situation is not expected to let up anytime soon. Miller predicted that foreclosures will be high for the next three years. And until those homes are rescued, there won’t be any respite, he said.