New Housing Market Showing Some Strength

Confidence in American homebuilders rose in December for the third consecutive month, a sign that the housing market is finally stabilizing.  The National Association of Home Builders/Wells Fargo (NAHB) Housing Market Index (HMI) of builder confidence climbed to 21 — the highest level since May 2010 — from a revised 19 in November.   Economists had projected an index of 20, according to a Bloomberg News survey.  Readings below 50 mean the majority of respondents believe that conditions are poor.

Mortgage rates near record lows are attracting prospective homebuyers.  At the same time, a new wave of foreclosures means a sustained housing recovery could take years.  “We’re just seeing some incremental improvement,” John Herrmann, a senior fixed-income strategist at State Street Global Markets LLC in Boston, said.  “It’s too early to say that the worst is over.  It’s too early to say that we’re pulling ourselves out of the morass of housing.”

Builders in the South had the biggest increase, with the index jumping four points to 25 this month.  The West reported a gain to 16 from 15, while the Midwest held steady at 24.  Confidence in the Northeast fell to 15 from 16.

“This is the first time that builder confidence has improved for three consecutive months since mid-2009, which signifies a legitimate though slowly emerging upward trend,” NAHB Chief Economist David Crowe said.  “While large inventories of foreclosed properties continue to plague the most distressed markets and consumer worries about job security and the challenges of selling an existing home remain significant factors, builders are reporting more inquiries and more interest among potential buyers than they have seen in previous months.”

Low-ball appraisals are spoiling some deals, even after contracts have been signed.  As a result, some buyers are waiting to buy a new house because they can’t sell their home.  Those positioned to purchase are benefiting from lower prices and rates.  30-year fixed mortgages are 3.94 percent — a record low.  So far, those factors have not boosted new home sales.

The seasonally adjusted index, which parallels closely with single-family housing starts, is designed so that readings over 50 are considered “good.”  This hasn’t been the case since April 2006.

According to NAHB Chairman Bob Nielsen, “While builder confidence remains low, the consistent gains registered over the past several months are an indication that pockets of recovery are slowly starting to emerge in scattered housing markets.”

Each of the HMI’s three component indexes registered a third consecutive month of improvement in December.  The component gauging current sales conditions rose two points in the latest month to 22, while the component gauging sales expectations in the next six months edged up one point to 26.  The component gauging traffic of prospective buyers gained three points and is now at 18, which is its highest level since May of 2008.