The Home Buyer's Korner

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April 17th, 2015

Guy looking up in color

Builder Confidence for April

new home

The National Association of Home Builders (NAHB) reported that April’s Housing Market Index rose from a reading of 52 in March to 56 for April. That’s in line with spring being the peak home buying season.

A reading over 50 indicate that more builders view market conditions as positive as those who do not. NAHB members cited lower mortgage rates and better labor market conditions as reasons they expect more home buyers to enter the market.

However, I’m not so sure Home Builders have a reasonable expectation about the jobs market. Stagnant wages continue to damper many would-be home buyers from entering the market. Average hourly earnings increased less-than-forecast at 0.1 percent in February and only 1.3 percent for all of 2014, with no short term signs in sight that slack is putting pressure on employers to raise wages.

The NAHB Home Builder Index is calculated from three components. The reading for confidence in current housing market conditions rose from 58 in March to 61 in April. Builder confidence for sales condition in the next six months rose from a reading of 59 to 64, which was the highest reading for 2015 thus far.

Home builder confidence in buyer foot traffic moved from 37 to a reading of 41 in April. Lingering winter weather likely kept house hunters indoors in many areas. NAHB Chief Economist David Crowe said that the uptick in the NAHB Housing Market Index indicates that housing market conditions can be expected to improve throughout 2015.

NAHB measures regional changes in housing markets on a three-month rolling average. April’s results were mixed.

Builder confidence in the southern region increased from 55 to 56 in April. The northwestern region was unchanged from March to April at 42. Builder confidence in Midwestern housing markets fell by two points from 56 to 54. The western region saw builder confidence fall three points from the March reading of 61 to April’s reading of 58. Much of the decline can probably be attributed to unresolved labor disputes at West Coast ports.

In other related reports, the Department of Commerce released its Housing Starts Index and regardless of how Builder Confidence is being reported it doesn’t appear that home builders are putting their money where their mouth is.

Permits for future home construction declined 5.7 percent to a 1.04 million-unit pace, however, March was the eighth straight month that they remain above 1 million units. Last month, groundbreaking rebounded sharply in the Northeast and Midwest, which had been affected by cold weather in February. Starts, however, fell in the West and we only saw a one-point increase in the South as we enter peak season. It’s worth noting that these two regions are where most home building takes place.

Though new homes represent only about 10 percent of the overall housing market, but it has an outsize impact on the economy and contributes to other purchases like furniture and appliances. Furthermore, each home built creates an average of three jobs for a year and generates about $90,000 in tax revenue, according to NAHB data.

Let’s hope the pool of recent data is just a bump in the road and Builder Confidence is right.

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