by Anjana Sundaram
January 19, 2010
Home builder confidence declined in January to its lowest point since June, the National Association of Home Builders reported Wednesday. The January Housing Market Index edged down to 15, indicating that only 15 percent of home builders think it is a good market for newly built, single-family homes.
The index’s performance decreased one point from the prior month, which was attributed to continuing concerns over a poor job market and a large number of foreclosed homes for sale. The measure underperformed compared with the average analyst expectation of 17 according to a Bloomberg survey. The index tracks three components: current single-family home sales, single-family sales expected in the next six months, and the traffic level of prospective buyers.
On a regional basis, the index showed that the builder confidence in the Midwest region was lower than the national number, decreasing by a point to 11 for the month of January. “The foreclosures and short sales are a pretty good share of the Illnois market,” said Marv Stockert, executive director at the Illinois Association of Mortgage Brokers.
David Crowe, chief economist at the builder’s association, said consumer hesitation is impeding growth in the home sales market. “Home-buying conditions have rarely been as good as they are right now, but consumers are still waiting to see significant positive signs of improvement in employment and confidence, and this is slowing buyers’ return to the market,” Crowe said in a press release.
Peter Morici, an economist at the University of Maryland, correctly predicted that the builder confidence index would decline to 15, given the current excess supply of homes. “We’ve built more houses than we need….The bottom line is that we are going to see 5 million foreclosures in the next two to three years,” Morici said.
To make matters worse, builder confidence is not expected to increase in the near future. “Builders can’t borrow any money to build on vacant land because the values have declined so much… Most builders like to go into situations with pre-sold properties, but new constructions loans are not available,” said Jeffrey Metcalf, president of Record Information Services, an information database company. Metcalf predicts a slow climb for the real estate market: “Any glimmer of hope, and the industry gets smacked down again.”
Many believe that builder sales are being artificially increased because of the Federal Home Buyer Tax Credit, which offers first-time buyers an $8,000 credit until April 30, 2010. “Any sales for new residential properties are being driven by first-time home buyers….In my opinion, that is what’s keeping builder sales going, ” Stockert said. “Once we see this $8,000 credit go away, I believe that the home sales are really going to be hurt.”