Category Archives: Builder Confidence Index

CR: Builder Confidence declines in April due to higher costs

Builder Confidence declines in April due to higher costs

by Bill McBride on 4/15/2013  

The National Association of Home Builders (NAHB) reported the housing market index (HMI) decreased 2 points in April to 42. Any number under 50 indicates that more builders view sales conditions as poor than good.

From the NAHB: Rising Costs Put Squeeze on Builder Confidence in April

Facing increasing costs for building materials and rising concerns about the supply of developed lots and labor, builders registered less confidence in the market for newly built, single-family homes in April, with a two-point drop to 42 on the National Association of Home Builders/Wells Fargo Housing Market Index (HMI), released today.

“Supply chains for building materials, developed lots and skilled workers will take some time to re-establish themselves following the recession, and in the meantime builders are feeling squeezed by higher costs and limited availability issues,” explained NAHB Chief Economist David Crowe. “That said, builders’ outlook for the next six months has improved due to the low inventory of for-sale homes, rock bottom mortgage rates and rising consumer confidence.”

While the HMI component gauging current sales conditions declined two points to 45 and the component gauging buyer traffic declined four points to 30 in April, the component gauging sales expectations in the next six months posted a three-point gain to 53 – its highest level since February of 2007.

Looking at three-month moving averages for regional HMI scores, the Northeast was unchanged at 38 in April while the Midwest registered a two-point decline to 45, the South registered a four-point decline to 42 and the West posted a three-point decline to 55.

HMI and Starts Correlation Click on graph for larger image.

This graph compares the NAHB HMI (left scale) with single family housing starts (right scale). This includes the April release for the HMI and the February data for starts (March housing starts will be released tomorrow). This was below the consensus estimate of a reading of 45.

As I noted last week, lumber prices are near the housing bubble high, and it appears highers costs are impacting builder confidence.

Read more at http://www.calculatedriskblog.com/2013/04/builder-confidence-declines-in-april.html#DcTF9VALOx5AY9XT.99

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Builder Confidence Continues Rise in November

Builder Confidence Continues Rise in November

by David Crowe — Eye on Housing 

The NAHB/Wells Fargo Housing Market Index rose another five points to a 6-year high of 46 in November. The component measuring traffic remained unchanged at 35; the component measuring current sales rose 8 points to 49 while the component measuring future demand rose two points to 53. The expectation component has been above the tipping point of 50 for three consecutive months (above 50 being the point where more builders see a better market ahead than see a poorer market).
Regional three-month moving average index levels also rose two to four points, Northeast to 31, Midwest to 45, South to 43 and West to 47. The Northeast index is the only region that has hesitated in the last several months, remaining in a narrow band of 29 to 31 for six months. Single-family permits have behaved similarly, running between 40,000 and 45,000 since March 2012. The FHFA price index changes for the two divisions within the Northeast region have been among the lowest recently. The Northeast is the only region with a higher unemployment rate now than one year ago and in two months ago.
Builders report continued difficulties with buyers qualifying for mortgages and low appraisals below the contract price. But the source of the increasing optimism centers on improved buyers’ attitudes. Builders report buyers who are able to obtain a mortgage are ready to buy after postponing their purchase for years. Low inventory or the wrong inventory in the existing home market has also benefited home builders. Over the past year, new home sales have increased 27% while existing home sales have increase 11% as the available and appropriate inventory of existing homes dries up.
The new home inventory is also very low but builders are able to respond to orders, at least as the market begins to recover. Lot inventory is low and in some markets will soon become a limiting factor to continued expansion. Material prices, particularly lumber and wood products, have risen and in a few markets construction labor and subcontractor availability has begun to worry builders. A continued home building expansion will require attracting the resources, materials, labor and land, from their current usage and that will likely mean a rise in home prices.

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Home Builder Confidence Reaches Five-Year High

Eye on the Economy: Home Builder Confidence Reaches Five-Year High

by David Crowe — Eye on Housing 

*Eye on the Economy is an NAHB newsletter that is published every two weeks and takes a larger view of recent economic and housing policy news.

Recent economic data indicate that the overall economy has entered a slow growth period. Nonetheless, during this period economic indicators have generally suggested that housing, and home building in particular, is an important source of economic growth. The question is whether the building recovery in housing will be affected by the slowing of the rest of the economy. In general, while NAHB expects occasional ups and downs for housing, the forecast calls for continued improvement for housing markets.

Housing starts data for the month of July offer a good illustration.Construction of new homes slowed slightly in July to an annual rate of 746,000, down 1.1% from the revised June rate of 754,000, which was a seven-year high. The decline was concentrated in the single-family sector where starts fell 6.5% to an annual rate of 502,000, again down from an elevated rate of 537,000 in June, which was the highest since the end of the home buyer tax credit in 2010.

However, the decline in single-family starts is more likely an adjustment to a very healthy June rate, than it is a sign that the budding housing revival is in trouble. NAHB expects the annual rate of housing starts in the third quarter to be 765,000 or about a 15% increase over the third quarter of 2011.

Recent survey data of single-family home builders provide supporting evidence. The August NAHB/Wells Fargo Housing Market Index (HMI) reached a five-year high of 37, with all three components (present conditions, six-month forward-looking conditions and prospective traffic of buyers) of the index at similar highs. The expectation component of the index increased to 44, the highest since March 2007 when it was at 50, a level where equal numbers of builders foresee a good market as see a poor market.

Similarly, the NAHB’s 55+ HMI survey, which reports builder confidence in the market for new 55+ single-family homes, increased significantly in the second quarter of 2012. Compared to the same period a year ago, the 55+HMI has more than doubled from 13 to 29. The present sales measure more than doubled, while both the components for expected sales for the next six months and traffic of prospective buyers rose.

The survey results suggest buyers are returning to the 55+ housing market as home prices begin to improve, helping to unlock some of the pent-up demand from 55+ consumers. Additionally, the 55+ multifamily rental indices recovered substantially last year, and are now holding steady.

While single-family starts were down in July, multifamily construction continues to expand. Housing starts of units in buildings with five or more apartments came in at 229,000 seasonally adjusted annual rate, up 9.6% from the revised figure for June. The three-month moving average has been very stable, hovering between 205,000 and 210,000 for the past quarter. On a year-over-year basis, housing starts for 5+ units are up strongly, 30% since July of 2011.

Existing home sales increased 2.3% from June, and are up 10.4% from the same period a year ago. The National Association of Realtors reported July 2012 total existing home sales were at a seasonally adjusted rate of 4.47 million combined for single-family homes, townhomes, condominiums and co-ops. That compares to 4.05 million units from the same period a year ago.

The total housing inventory at the end of July increased 1.3% from the previous month to 2.4 million existing homes for sale. At the current sales rate, the July 2012 inventory represents a 6.4-month supply which is down from a 6.5-month supply in June, and very much improved from the 9.3-month supply of homes a year ago.

Supporting economic conditions for housing continue to be mixed however, offering both good and bad news. For example, the NAHB/Wells Fargo Housing Opportunity Index (HOI) fell slightly in the second quarter of 2012, down to 73.8, from the all-time record high of 77.5 recorded in the first quarter of the year. Firming home prices in most metro areas – in general, a good thing for the economy– contributed to the small decline in affordability. The HOI is the share of new and existing homes sold in a quarter affordable to a family earning the median income.  An HOI of 73.8 means that 73.8% of all homes sold during the second quarter were affordable to families earning national median income ($65,000).

The Mortgage Bankers Association’s National Delinquency Survey revealed a surprising increase in the seasonally adjusted delinquency rate during the second quarter of 2012. The total share of first-lien residential mortgages with past due payments increased 18 basis points to 7.58%. In addition, all three delinquency buckets registered increases compared to the first quarter, with the largest quarter-to-quarter jump occurring among loans 90+ days past due (3.06% up to 3.19%).

Foreclosure starts were unchanged or lower compared to the first quarter of 2012 in 31 states, but a handful of states registered very large quarter-to-quarter increases in foreclosure actions. In total, five states (Florida, California, Illinois, New York and New Jersey) account for just above half of the nation’s foreclosure inventory, but represent less than 32% of all serviced loans in the U.S.

Inflation remains in check. The Bureau of Labor Statistics reported thatthe Consumer Price Index for All Urban Consumers (CPI-U) held steady in July. Overall, the CPI-U has remained either unchanged or declined in each of the last four months. Energy prices slipped 0.3% in July, putting more downward pressure on topline CPI.  The next couple months of readings on overall CPI will likely be stronger, however, as gasoline and natural gas prices have surged in recent weeks.

The shelter index, which serves as a rough measure of overall housing costs, rose for the 28th consecutive month; however, each of those increases have been modest (including the 0.1% gain in June), leaving the shelter index only 2.1% above its year-ago level. To more closely assess trends in rental housing costs, NAHB constructs a real rent index from the CPI for rent of primary residences and overall CPI. This metric has registered four consecutive month-to-month increases, with the latest gain coming in at 3.3% on an annualized basis.

Finally, NAHB economists examined issues related to the age of the housing stock, and its implications for future demand for both remodeling and new home construction. One analysis took a look at the quality of insulation, as reported by households. The survey findings indicate that overall, nearly 39% of occupants of single-family homes consider their homes well insulated. Households reporting the highest level of satisfaction with the insulation of their homes were those who occupied homes built after 2004, for whom 67% reported that their home was well insulated.

Related to these research findings, another analysis examined the geographic distribution of the median age of the housing stock.For the typical housing unit, the oldest homes are found in the Northeast. With the exception of the District of Columbia, the state with the highest median age is New York, at 57 years.  Rhode Island is next at 56. The newest housing is present in the southern parts of the nation, where population growth has been the highest in recent decades.

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NAHB Builder Confidence increases in May, Highest since May 2007

NAHB Builder Confidence increases in May, Highest since May 2007

by CalculatedRisk on 5/15/2012 

The National Association of Home Builders (NAHB) reports the housing market index (HMI) increased 5 points in May to 29. Any number under 50 indicates that more builders view sales conditions as poor than good.

From the NAHB: Builder Confidence Rises Five Points in May

Builder confidence in the market for newly built, single-family homes gained five points in May from a downwardly revised reading in the previous month to reach a level of 29 on the National Association of Home Builders/Wells Fargo Housing Market Index (HMI), released today. This is the index’s strongest reading since May of 2007.

“Builders in many markets are reporting that buyer traffic and sales have picked back up after a pause this April,” said Barry Rutenberg, chairman of the National Association of Home Builders (NAHB) and a home builder from Gainesville, Fla. “It seems we have resumed the gradual upward trend in confidence that started at the beginning of this year, as stabilizing prices and excellent affordability encourage more people to pursue a new-home purchase.”

“While home building still has quite a way to go toward a fully healthy market, the fact that the HMI has returned to trend is an excellent sign that firming home values, improving employment and low mortgage rates are drawing consumers back,” said NAHB Chief Economist David Crowe.

Each of the index’s components rebounded from declines in the previous month. The component gauging current sales conditions and the component gauging traffic of prospective buyers each rose five points in May to 30 and 23, respectively, with the traffic component hitting its highest level since April of 2007. The component gauging sales expectations in the next six months rose three points to 34.

Three out of four regions registered improving builder sentiment in May. This included a six-point gain to 32 in the Northeast, and five-point gains to 27 and 28 in the Midwest and South, respectively. The West posted a two-point decline, to 29.

HMI and Starts CorrelationClick on graph for larger image.

This graph compares the NAHB HMI (left scale) with single family housing starts (right scale). This includes the May release for the HMI and the March data for starts (April housing starts will be released tomorrow).

Housing Investment and Construction Graphs

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Builder Confidence Slips Three Points in April

Builder Confidence Slips Three Points in April

by Robert Dietz — Eye on Housing

Builder confidence in the market for newly built, single-family homes declined for the first time in seven months this April, sliding three notches to 25 on the National Association of Home Builders/Wells Fargo Housing Market Index, released today. The decline brings the index back to where it was in January, which was the highest level since 2007.

Derived from a monthly survey that NAHB has been conducting for 25 years, the NAHB/Wells Fargo Housing Market Index gauges builder perceptions of current single-family home sales and sales expectations for the next six months as “good,” “fair” or “poor.” The survey also asks builders to rate traffic of prospective buyers as “high to very high,” “average” or “low to very low.” Scores from each component are then used to calculate a seasonally adjusted index where any number over 50 indicates that more builders view conditions as good than poor.

Each of the index’s components registered declines in April. The component gauging current sales conditions and the component gauging sales expectations in the next six months each fell three points, to 26 and 32, respectively, while the component gauging traffic of prospective buyers fell four points to 18. (Note, the overall index and each of its components are seasonally adjusted.)

Regionally, the HMI results were somewhat mixed in April, with the Northeast posting a four-point gain to 29 (its highest level since May of 2010), the West posting no change at 32, the South posting a three-point decline to 24 and the Midwest posting an eight-point decline to 23.

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NAHB Builder Confidence index unchanged in March

NAHB Builder Confidence index unchanged in March

by CalculatedRisk on 3/19/2012  

The National Association of Home Builders (NAHB) reports the housing market index (HMI) was unchanged in March at 28 (February was revised dwon from 29). Any number under 50 indicates that more builders view sales conditions as poor than good.

From the NAHB: Builder Confidence Unchanged in March 

Builder confidence in the market for newly built, single-family homes was unchanged in March from a revised level of 28 on the National Association of Home Builders/Wells Fargo Housing Market Index (HMI), released today. This means that following five consecutive months of gains, the HMI is now holding at its highest level since June of 2007.

“While builders are still very cautious at this time, there is a sense that many local housing markets have started to move in the right direction and that prospects for future sales are improving,” said Barry Rutenberg, chairman of the National Association of Home Builders (NAHB) and a home builder from Gainesville, Florida. “This is demonstrated by the fact that the HMI component measuring builder expectations continued climbing for a sixth straight month in March, to its highest level in more than four years.”

“Builder confidence is now twice as strong as it was six months ago, and the West was the only region to experience a decline this month following an unusual spike in February,” observed NAHB Chief Economist David Crowe. “That said, many of our members continue to cite obstacles on the road to recovery, including persistently tight builder and buyer credit and the ongoing inventory of distressed properties in some markets.”

While the HMI component gauging current sales conditions declined one point to 29 in March, the component gauging sales expectations in the next six months gained two points to 36 and the component gauging traffic of prospective buyers held unchanged at 22.

HMI and Starts CorrelationClick on graph for larger image.

This graph compares the NAHB HMI (left scale) with single family housing starts (right scale). This includes the March release for the HMI and the January data for starts (February housing starts will be released tomorrow).

Both confidence and housing starts had been moving sideways at a very depressed level for several years – but confidence has been moving up recently, and it appears starts are increasing a little too.

This is still very low, but this is the highest level since June 2007.

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How can builder confidence improve, single family starts increase sharply, and new home sales be unchanged?

How can builder confidence improve, single family starts increase sharply, and new home sales be unchanged?

by CalculatedRisk on 2/19/2012 

The Census Bureau will report new home sales on Friday, and the consensus is for sales of 315 thousand on a seasonally adjusted annual rate (SAAR) basis. This is up less than 2% from the 310 thousand SAAR sales reported in January 2011.

That seems a little puzzling. Consider the following …

First, look at the NAHB builder Housing Market Index. More builders still view sales as “poor” as opposed to “fair” or “good”, but the HMI – and all of the components – are up sharply from a year ago (the most recent report was for February, but compare January 2012 to January 2011):

Housing Market Index Traffic of Prospective Buyers Current Sales
Jan-11 16 12 15
Jan-12 25 21 25
Feb-12 29 22 30

This would seem to suggest more than a 1% or 2% increase in sales.

Second, look at the recent builder reports (from Tom Lawler):

Settlements Net Orders Backlog
End 2011 End 2010 End 2009 End 2011 End 2010 End 2009 End 2011 End 2010 End 2009
D.R. Horton 4,118 3,637 5,529 3,794 3,363 4,037 4,530 3,854 4,136
PulteGroup 4,303 4,405 6,200 3,084 3,044 3,748 3,924 3,984 5,931
NVR 2,391 2,639 2,550 2,158 1,765 2,000 3,676 2,916 3,531
The Ryland Group 1,040 909 1,666 915 775 969 1,514 1,187 1,732
Meritage Homes 894 837 1,202 749 713 621 915 778 1,095
Beazer Homes 882 549 961 724 553 728 1,309 800 950
MDC Holdings 950 865 1,109 523 519 637 1,043 842 826
Standard Pacific 782 619 943 615 428 547 681 414 599
M/I Homes 667 650 858 505 460 448 676 532 650
Total 16,027 15,110 21,018 13,067 11,620 13,735 18,268 15,307 19,450
YoY % Change 6.1% -28.1% 12.5% -15.4% 19.3% -21.3%

From economist Tom Lawler on February 7th:

The latest Census report on new SF sales showed a YOY increase in Q4/2011 sales of just 3%, and a YOY decline in Q4/2010 sales of 20.5%.

The nine-builder group’s order backlog at the end of 2011 was up 19.3% from the end of 2010.

As I’ve noted many times, Census’ methodology for measured new SF sales is not directly comparable to reports from builders. I’m guessing that part of the “stronger than Census” builder reports reflect gains in market share, but I’m also guessing that overall new home sales were a bit better than preliminary Census data suggested.

The combination of higher order backlogs, stronger sales, and unusually mild weather in much of the country is likely to result in single-family starts numbers in the first few months of 2012 that are significantly higher than “consensus.”

Total Housing Starts and Single Family Housing StartsClick on graph for larger image.

Sure enough. Single family housing starts were revised up sharply for December and were above 500 thousand SAAR in January. As Lawler notes, some of this was probably weather related, but some of the pick up was evident in the builder reports.

So if the builders are reporting a “stronger than Census” increase in sales (even accounting for market share gains), confidence is up (actually less pessimism), and single family starts are up sharply from a year ago, it seems surprising that new home sales were essentially unchanged in January.

Goldman Sachs is forecasting sales of 310 thousand SAAR in January 2012 (no change year-over-year), and Merrill Lynch is forecasting 315 thousand. I think I’ll take the over.

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