The slip in homebuilder confidence may not signal a wrong turn -- yet
Filed under: Economy, Investing
In a modest setback on the housing front, the National Association of Home Builders' Housing Market Index fell to 18 in October from 19 in September, the group announced Monday. That's the index's first decline since June.Economists surveyed by Bloomberg News had expected the reading to rise to 20. In October 2008, the index was at 14, and it hit a cycle low of 8 in January. The NAHB Housing Market Index measures builder perceptions of current single-family sales, sales expectations for the next six months and the traffic of prospective buyers. Readings over 50 indicate that more builders view sales conditions as good rather than poor.
In October, all three index components declined for the first time in about a year: the single-family present-sales component fell to 17 from 18 in September; single-family sales expectations for the next six months dropped to 27 from 29; and prospective buyers traffic declined to 14 from 17.
The NAHB index isn't as telling as housing starts and new/existing home sales data compiled by the U.S. Commerce Department or the S&P/Case-Shiller Home Price Survey, but economists and market analysts still monitor it because of the information on builder sentiment it provides. Essentially, it provides a window into the perception and confidence levels of builders -- clues that have predicted increased or decreased activity in the housing sector.
Further, economists follow U.S. housing activity because the sector doesn't operate in a vacuum. When homes are sold, homeowners tend to buy durable goods/big-ticket items for the new home: furniture, appliances, landscaping equipment, home-care supplies, etc. An uptrend in these areas is good news for the economy and bullish for the U.S. stock market.
What's more, October's NAHB index dip most likely will not be enough to change the narrative that the U.S. housing sector is stabilizing. That's partly because many economists say the federal government's $8,000 income tax credit for first-time home buyers and comparatively low interest rates have played a role in ending the worst housing recession in more than 25 years. Some potential home buyers who were considering buying next year have moved that purchase up to this year to take advantage of $8,000 tax credit, which ends Nov. 30.
With that expiration date in mind, the National Association of Realtors is lobbying for an extension of the program into 2010, arguing that the still-fragile U.S. housing market needs the program.
NAR Regional Vice President Joseph Canfora says the program is working, noting that 355,000 to 400,000 housing transactions are directly attributable to the credit, something the NAR believes has made a significant dent in housing inventories and has helped stabilize home prices.
Still, the largest factor in the housing sector's recovery remains market prices, many economists agree. Prices have dropped so much that home buyers with decent job security and good credit are calculating, given the slim chance of picking an absolute bottom for home prices, that now represents a decent time to purchase that home.
Even though the October reading is disappointing, investors should keep in mind that the decline was minor, it's for only one month, and the longer-term trend is still one of stabilization. Should the NAHB index continue to decline through the autumn, however, that would represent a concern. Bottom line: The U.S. housing sector is off life-support, but it's still a very weak patient -- one that could benefit from an extension of that first-time buyer tax credit, preferably through at least September 2010.
Why is Oprah going to cable? Hint: It's nothing to get teary about
Kisses from Hershey: Candymaker may court Cadbury with $17 billion bid
D-Day for Harry Reid: Can he wrangle 60 votes for Senate health reform bill?
Reader Comments (Page 1 of 1)
10-19-2009 @ 5:48PM
Limoman said...
I DON'T UNDERSTAND..
1. WHY DO WE NEED MORE NEW HOMES TO BE BUILT, WHEN WE HAVE MILLIONS OF CURRENT ONE'S SITTING?
2. We're suppose to keep BAILING OUT the Same Home builders that Built TOO MANY Homes to begin with?
3. Just so they can keep Over building More Homes ?
4. There is at least 1 New Home on every Street and Hudreds of new one's In AZ and Cal and other Major Area's just sitting Empty..
It doesn't make sense to me..
Reply
10-19-2009 @ 5:48PM
Limoman said...
"The National Association of Realtors is lobbying for an extension of the program into 2010, arguing that the still-fragile U.S. housing market needs the program."
SURE THEY DO! so they can keep conning people that they caused this whole mess to begin with..To keep Getting Unqualifed Buyers to buy Over Qualified Homes ?
Most of them NAR people Should have been required to RETURN the Illegal, if not Imoral Commissions they made selling Homes to Under Qualified people.. And Pull their Licenses...! along with the Mortgage Brokers!
They want the US Taxpayer to keep Bailing them Out.. ?Sure....There were 6x as many RE Agents after 2003 as Needed an their are still over 2x as many...and most of them are nothing But PART TIME people that have no business being in that Business-Racket..
They're Just like Used Car Salesmen..
Reply
10-19-2009 @ 6:59PM
bem said...
Correct me if I'm wrong but my understanding is that homebuyers get qualified by the mortgage companies not the realtors.
10-19-2009 @ 6:03PM
Donovan said...
You bet NAR wants the program to be extended. The agents need their sales commission's.
Even buyers with excellent credit are having a tough time being approved for a mortgage, with out a large down payment. & pristine credit. And even better luck getting the lowest interest rate being offered. The majority of buyers DO NOT QUALIFY.
Its going to be a few years, before any real improvements are seen in Real Estate and mortgages.
Reply
10-19-2009 @ 6:20PM
Donovan said...
I would also suggest that whether building new, or purchasing a pre-owned property. The buyers consult and have their (PRIVATE ATTORNEY) review and approve all contracts for the home purchase. Including your attorney being present at the closing. Have a minimum of a 72 hour attorneys contract approval clause/rider in the contract. Especially, if your Realtor or builder, should say its not necessary.
Reply
10-19-2009 @ 6:35PM
jim said...
It did bounce and then it dropped like a rock.. The market is dead..
Reply
10-19-2009 @ 8:04PM
QC said...
Limoman you don't know what you're talking about I'm an MBA/FINANCE AND A REAL ESTATE BROKER. THE PART TIMERS IN THIS BUSINESS ARE SELLING THEIR MOM AND DAD'S HOME. IT'S VERY DEMANDING AND I'D PUT AN AGENT UP AGAINST YOUR BUTT ANYDAY.
Reply
10-19-2009 @ 11:16PM
Andy said...
What rebound???????????
Reply
10-19-2009 @ 11:29PM
pjmducks6 said...
Subtract the $8,000 tax credit, and the 97% loan-to-value FHA loans at Treasury-subsidized interest rates, and the market is still in a free-fall.
Reply
10-20-2009 @ 2:25AM
RebldgUSA said...
It should go thru the end of the year for 2009 tax deduction. A better stimulus for all Americans is to all Americans. If you happen to be out of work, know someone who is, in financial need, or simply want to participate too, visit www.peoplesstimulusplan.weebly.com. It's in response to the government's bailout. The People's Plan is simply that - for people. Be excellent to one another !
Reply
10-20-2009 @ 3:05AM
Lyn said...
Outstanding post! What is required to prove that an agency legitimately represents all mortgage holders in the MBS? As you note; a person in foreclosure could also be holding a portion of their own mortgage!
Some sites are abandoned and the city must go after the mortgage holder to maintain the property: Who do they go after?
No wonder there is a huge "shadow market" of foreclosures; the real "shadow" is who actually holds the mortgage. A very interesting mess; tell us more.
Reply
10-20-2009 @ 5:03AM
Lisa said...
Buying a new home in California is foolish. At the height of the building boom our legislature reponded to defective housing lawsuits by making the "warranty" on a new home worthless. First, you can't get attorney fees so, to win is to loose after $tens of thousands in fees are deducted from "cost". Second, each type of defect is parceled out so that the statute of limitations runs out before you can discover a defect. For instance, a bad foundation, 1 year statute when it takes many years to discover (nor can you sue before damage occurs). People foolishly buy next to crumbling levees and sign a waiver because FEMA rates the condition worse than New Orleans. After 2000, huge developments were allowed in previously prohibited flood plains (anything for revenue). The cheap defective products, bad plumbing joints, poor drainage, no flashing on the roof, chinese drywall, green lumber for joists, cheap particle board under thin stucco ... unbelievable!
Reply
10-20-2009 @ 7:45AM
tom said...
Look at the auto rebates, after, vehicle sales hit bottom. Same thing will happen in the housing market. Car companies wanted an extension also, got none. Foreign companies made out on this one. Now they are having a cash for clunkers in Japan and Korea and American vehicles are not welcome to their program.
Reply
10-20-2009 @ 8:38AM
Gary said...
Markets are all getting better, these ups and downs come and go. Auto sales dropped after the first month of the clunkers plan because everyone had bought the car they wanted. Now, sales are starting to move upward again. Quit the fear, it does you and no one else any good.
Reply
10-20-2009 @ 9:00AM
lpi2007 said...
New Homes HUH, how about the millions and millions that in forecloser, and the millions and millions of people out of work and their crying that they can't build more houses, these guys making 80-100 thousnad a year , I would be crying too. I know a place hiring if one of these homebuilders wants a job, it's a car wash. Louisville Paranormal Investigations the show of Shadows of Kentucky cast siad this, check us out
Reply