Homebuilders Feeling Better
- Sep 19, 2012
The National Association of Home Builders reported on Tuesday that its housing market index increased 3 points in September to 40. A reading under 50 means that more builders believe sales conditions are poor rather than good, but it’s still the highest reading for the index since June 2006, when the industry was beginning its long slide.
All three index components posted gains in September. The component gauging current sales conditions increased four points to 42, while the component measuring sales prospects in the next six months rose eight points to 51—into optimism, that is. Even the component measuring traffic of prospective buyers, still the lowest of the three, edged up one point to 31.
It’s still too soon for the party hats and noisemakers, however. “Against the improving demand for new homes, concerns are now rising about the lack of building lots in certain markets and the rising cost of building materials,” NAHB Chief Economist David Crowe noted in a press statement. “Given the fragile nature of the housing and economic recovery, these are significant red flags.”
Residential inventories drop
One clear reason for increasing homebuilder optimism is the fact that for-sale residential inventory is low. According to Realtor.com on Tuesday, the inventory of U.S. single-family homes, condos, townhomes and co-ops was 1.84 million units for sale in August, down 18.68 percent compared to a year ago and about 40 percent below the peak of 3.1 million units in September 2007, when Realtor.com began monitoring the markets.
The median age of the inventory of for-sale listings was 91 days in August, up by 3.41 percent from July, but down 11.65 percent below the median age one year ago. While the median age of the inventory is highly seasonal, the year-over-year decline is consistent with other data showing a significant improvement in market conditions.
For-sale inventories in August declined on an annual basis in all but two of the 146 MSAs monitored by Realtor.com, with for-sale inventory dropping by 20 percent or more in 62 of the 146 markets. Eight out of top 10 of these markets are in California, with Seattle and Atlanta also registering declines of 41 percent and 37 percent, respectively. The two markets that saw inventory increases were Shreveport, La., and Philadelphia.
Mortgage origination drops
The Federal Financial Institutions Examination Council, a group of U.S. regulators, said on Tuesday that the total number of originated residential real estate loans of all types and purposes in 2011 fell by about 780,000, or 10 percent, from 2010, in part because of a 13 percent decline in refinancings. Home purchase lending also fell, but by a more modest 5 percent.
The 2011 data reflect a continued heavy reliance on loans backed by Federal Housing Administration insurance that began with the onset of problems in the mortgage market. The FHA’s share of first-lien loans was 7 percent in 2007 but 26 percent in 2008, and then jumped to 37 and 36 percent, respectively, in 2009 and 2010. In 2011, the FHA share fell to 31 percent.
Wall Street ended the day mixed, though barely moving. The Dow Jones Industrial Average gained 11.54 points, or a scant 0.09 percent. The S&P 500 was down 0.13 percent, and the Nasdaq lost a mere 0.03 percent.