Home Builder

Steady hiring and low mortgage rates have encouraged more people to buy homes over the past year. But the inventory of previously occupied homes on the market has declined sharply in many markets. On a national level, it was down 10% in May from prior-year levels as sales rose to an annual rate of 5.18 million. With demand up, prices rising and few homes on the market, builders have grown more optimistic about their prospects, stepping up construction. In May, builders applied for permits to build single-family homes at the fastest pace in five years. U.S. home builder confidence rose in July to its strongest level in 7-1/2 years as tightening supply and solid demand even in the face of rising mortgage rates fueled the sector’s recovery, data from the National Association of Home Builders released in July 2013

The NAHB/Wells Fargo Housing Market index rose to 57, its highest level since January 2006, from a revised 51 in June.  Analysts polled by Reuters had projected the index likely held at its originally reported June level of 52.  Readings above 50 mean more builders view market conditions as favorable than poor. Last month was the first time that the index, which is seen as a proxy on future home construction, has been above that dividing line since April 2006.

The housing sector, along with the labor market, has gained traction in recent months. They have enhanced the chances the Federal Reserve might reduce its bond-purchase stimulus later this year, even though some economists said the overall economy is too fragile for the central bank to make such a move.  Builders are seeing more motivated buyers coming through their doors as the inventory of existing homes for sale continues to tighten. Home appraisers like Abbe Edleman in New Jersey can provide property appraisals to help determine what price of home to focus on.  Meanwhile, as the infrastructure that supplies home building returns, some previously sky-rocketing building material costs have begun to get cheaper.

Pre-Recession

The NAHB index, first published in January 1985, reached a record low of 8 in January 2009. It averaged 54 in the five years leading to the recession that began in December 2007, and July was the first month since the downturn started that it has surpassed that mark. Builder confidence improved in each of the four U.S. regions. A gauge of sentiment in the West climbed to 62 in July from 50, and confidence in the Midwest advanced to 62 from 55 in June. In the South, the index rose to 54 from 52, and 41 from 38 in the Northeast.  A recent pickup in mortgage rates could be spurring buyers to enter the market to avoid even higher interest costs.

The average rate for a 30-year fixed mortgage climbed to 4.51 percent in the second week of July, the highest level in about two years.  The rate reached an all-time low of 3.31 percent in November.

The Recovery

The overriding driver of recovery in the housing market remains the under-production of both single and multifamily product throughout the economic downturn and up to and including this year. While production continues to lag the need, the US is experiencing supply shortages against a growing demand. Builders started work on 780,600 homes last year, a 28 percent increase from 2011 and the most in four years. Figures in the next month or so may show housing starts increased to a 960,000 annual pace in June from a 914,000 rate a month earlier.

Though new homes represent only a fraction of the housing market, they have an outsize impact on the economy. Each home built creates an average of three jobs for a year and generates about $90,000 in tax revenue, according to NAHB statistics.  Builders’ outlook for single-family home sales over the next six months increased seven points to 67, the highest reading since October 2005.  On a regional basis, confidence grew across the board, but posted the strongest among builders in the Midwest.