While the rest of the housing market frets about foreclosure moratoriums, builders are feeling confident about the months ahead, according to the NAHB/Wells Fargo housing market index (HMI).
The overall HMI rose three points in October to a reading of 16, which represents the first gain in five months. All three index components also moved up, with sales expectations for the next six months leaping five points to a reading of 23. Current sales conditions moved up three points to a reading of 16, and even buyer traffic rose two points, albeit to a still-anemic reading of 11.
"The new-homes market is finally moving past the lull that occurred when the home buyer tax credits expired and economic growth stalled this summer," said David Crowe, NAHB’s chief economist. "While challenges such as competition from foreclosures, inaccurate appraisal values, and general consumer uncertainty about the economy and job market continue to be major factors, builders have seen a slight increase in consumers who are considering a home purchase.”
Carl Reichardt Jr., a managing director and senior equity research analyst with Wells Fargo Securities in San Francisco, suggested that the much-discussed foreclosure paperwork problems could be a factor in October’s more optimistic HMI. “We believe new-home builders may benefit from the foreclosure freeze by several large banks, and perhaps the improvement in expectations this month is a function of that,” he wrote in a research note.
Foreclosures have been an ongoing competitive obstacle for builders during the downturn, who have struggled to price their homes appropriately against such properties only to find themselves hammered on the appraisals due to the use of REOs and distressed sales as comps.
But NAHB warned that builders’ optimism—and the economic impacts--could be short-lived if financing continues to be difficult to obtain. “The toughest obstacles really come down to financing – the scarcity of construction credit for builders along with tougher mortgage requirements for consumers,” Crowe said.
NAHB Chairman Bob Jones, who is a home builder in Bloomfield Hills, Mich., agreed. "Because most builders still have no access to credit for building homes, there is a real concern that we will not be able to meet the pent-up demand when consumers are ready to get back in the market. This problem threatens to severely slow the housing and economic recovery."
Alison Rice is senior editor, online, at BUILDER magazine.
Learn more about markets featured in this article: San Francisco, CA.