Economy Watch: Homebuilders Feeling a Little More Optimistic

By Dees Stribling, Contributing Editor

Homebuilders are still feeling more positive about their business than they have in a long time. The National Association of Home Builders reported on Tuesday that builder confidence in the market for new single-family homes rose for an eighth consecutive month in December to 47 on the National Association of Home Builders/Wells Fargo Housing Market Index.

Technically, 47 is still in the pessimism camp, since a level of 50 or more means that more homebuilders are optimistic than not. But considering the fact that during the depths of the Great Recession, the index dropped to single-digit territory for a while, the upper 40s represents a major improvement. The monthly upward movement marked a two-point gain from a slightly revised November reading, and the highest level the index has seen since April 2006.

“Builders across the country are reporting some of the best sales conditions they’ve seen in more than five years, with more serious buyers coming forward and a shrinking number of vacant and foreclosed properties on the market,” NAHB chairman Barry Rutenberg, a home builder from Gainesville, Fla., noted in a press statement. “However, one thing that is still holding back potential home sales is the difficulty that many families are encountering in getting qualified for a mortgage.”

For-sale residential inventory hits new low

The National Association of Realtors said on Tuesday, through its portal Realtor.com, that the total U.S. for-sale inventory of single-family homes, condos, townhomes and co-ops dropped to its lowest level since 2007. As of November 2012, some 1.674 million units were for sale nationwide, down 16.87 percent compared to a year ago and more than 45 percent below its peak of 3.1 million units in September 2007, when Realtor.com began monitoring the markets.

The current low inventories suggest that significant price concessions on the part of home sellers may be coming to an end. Realtor.com also reported that the median age of U.S. residential inventory was down by 11.4 percent on a year-over-year basis, but the median list price in November ($189,900) was the same as it was a year ago, despite the significant gains experienced earlier in the year.

Reator.com also reported that flat list prices—a leading indicator of future house price trends—are most likely signaling a slowdown in the recent rate of house price appreciation. How these potentially offsetting trends (lower inventories, yet also low appreciation) play out will depend on a variety of factors, including potential buyers’ optimism regarding the strength of the overall economy. If the fiscal cliff is avoided, and there are no more major disasters for a while, buyers might yet remain optimistic.

Fiscal cliff optimism?

Speaking of optimism, there was more negotiating about the fiscal cliff on Tuesday, and with it speculation by observers not in the negotiating room—most of which was positive “Plan B” (Plan Boehner?) was the latest buzzword, a plan to raise taxes on incomes of $1 million or more; that was rejected by the Obama administration. Still, the two sides are thought to be approaching a deal.

Wall Street was seemingly happy about the fiscal cliff talks on Tuesday, with the Dow Jones Industrial Average up 115.57 points, or 0.87 percent. The S&P 500 gained 1.15 percent and the Nasdaq advanced 1.46 percent.