Lee Morof's Real Estate Blog

Builder confidence in markets for new homes fell three points in February to a reading of 58. January’s reading was revised upward to 61. Builders have repeatedly expressed concerns shortages of labor and lots for development, but continue to express confidence in future sales conditions.

David Crowe, National Association of Home Builder’s (NAHB) chief economist, said that builders are watching slowing economic trends, but also cited low mortgage rates, improving labor markets and pent-up demand for homes as factors for strong U.S. housing markets. The NAHB notes that any reading over 50 indicates that more builders were confident than those who were not.

HMI Components Readings

The three readings used to calculate the NAHB Housing Market Index (HMI) were also lower. The reading for current sales conditions fell by three points to 65; the reading for sales conditions over the next six months fell by one point to 65. Home builders were less confident in buyer traffic in new home developments; the February reading dropped by five points to 39. Although the buyer traffic gauge was its lowest in nine months, it hasn’t topped the benchmark of 50 since the peak of the housing bubble ten years ago.

Three month rolling averages for the four regions charted by NAHB also dropped. The Northeastern region was 2 points lower at 47; the Southern region also lost two points for a reading of 59. The Midwestern region lost one point for a reading of 57 and the Western region dropped three points for a reading of 72.

Building New Homes Seen as Solution to Pent Up Demand for Homes

Analysts responded to February’s HMI with mixed views. Some analysts said that buyer demand for homes would override concerns over building costs. This view makes sense in view of pent-up demand driving up home prices. At some point, affordability and buyers ability to qualify for mortgage loans are likely slow the rate of increasing home prices.

Less pent-up demand could also help first-time and moderate income buyers compete for homes as buyer demand eases. First-time and moderate income buyers are essential in driving home sales, as their purchases of pre-owned homes allow homeowners to buy larger homes or relocate.

Reports on Housing Starts and Building Permits scheduled this week will shed additional light on home builder activity.

The Case-Shiller 10 and 20-City Home Price Indices for June reported year-over-year gains of 8.10 percent while the Case-Shiller National Home Price Index covers all nine census regions and reported a year-over-year gain of 6.20 percent.

Readings for all three indices worsened as compared to May readings, and all cities tracked showed slower growth in home prices. The National Home Price Index, which is now published monthly, rose by 0.90 percent from May’s reading, and both the 10 and 20-City Index posted month-to-month gains of one percent.

Five cities including Detroit, Las Vegas, New York, Phoenix and San Diego posted larger gains in June than for May.

Regional Home Price Growth: NYC Leads Cities in June

According to the Case-Shiller 20-City Index, New York City led home price growth in June with a reading of +1.60 percent. Chicago, Detroit and Las Vegas posted gains of 1.40 percent with Las Vegas posting its largest home price gain since last summer.

Year-over-year, Las Vegas posted the highest growth rate at 15.20 percent. San Francisco’s home price gains slowed to a year-over-year rate of 12.90 percent. Phoenix posted its slowest home price growth since March of 2012 with its June reading of 6.90 percent.

Home Prices Rise, But Modestly

While home prices in all cities tracked by Case-Shiller rose for the third consecutive month, analysts said that the Federal Reserve may increase its target federal funds rate as soon as the first quarter of 2015. This would lead to higher mortgage rates, which could further flatten home price growth.

Home affordability became an issue for many would-be buyers after the rapid rate of home price growth seen in 2013. Lower demand for homes could also impact the rate of home price appreciation as inventories of available homes rise. With these factors and no one knowing exactly when the Fed will act to raise rates, it’s unlikely that home prices will rapidly escalate in the coming months.

FHFA Reports Slower Home Price Growth in June

FHFA, the agency that oversees Fannie Mae and Freddie Mac, reported that June home prices slowed from May’s reading of 5.40 percent year-over-year to 5.20 percent year-over-year in June. FHFA reports on properties connected with mortgages owned or guaranteed by Fannie Mae and Freddie Mac. FHFA shared some positive trends for seasonally adjusted purchase-only home prices in its June report:

• June’s home prices rose in 40 states.

• Home prices rose for the seventh consecutive month

• Home prices rose for 23 of the last 24 months with the November 2013 as the exception.

• Home prices rose in the second quarter of 2014 in 74 of 100 metropolitan statistical areas (MSAs) tracked by the federal government.

• Home prices in the Pacific and Mountain census districts continued to slow in the second quarter. After rapid growth in home prices in 2013, this appears to indicate and expected adjustment rather than an unexpected crash in home prices for these regions.

While slower growth in home prices is of concern to homeowners, more affordable prices will likely encourage more would-be buyers to become actual buyers.

The National Association of Homebuilders (NAHB) Housing Market Index ended its 8-month winning streak this month, posting a value of 47. The January 2013 reading is on level with last month, and remains at a near 7-year high.

The Housing Market Index (HMI) is a measure of home builder confidence. 

HMI readings below 50 indicate a “poor” new construction conditions for single-family homes nationwide; ratings above 50 signal “good” ones.

Not since April 2006 has the Housing Market Index crossed into “good” territory, but the past two years have witnessed the HMI nearly triple; and the index is up from a reading of 25 just twelve months ago.

Values would have likely increased this month, too, if not for builder uncertainty. The NAHB cites concern over prolonged legislative decisions as contributing factors to this month’s builder confidence reading. Specifically, the trade group expressed concern over the future of the federal income tax deduction for home mortgage interest and spending cuts related to the recent, so-called “fiscal cliff”.

As compared to the month prior, this month’s HMI showed the following :

• Current housing conditions were mostly unchanged between December and January
• Sales expectations the next six months dropped slightly between December and January
• Prospective home buyer foot traffic increased slightly between December and January

January marks the tenth consecutive month through which buyer foot traffic has increased. Foot traffic is now at its highest level in nearly 7 years.

The NAHB Housing Market Index suggests a slow, steady rise in confidence among the nation’s home builders. This is occurring, in part, because of improving housing market conditions both nationally and regionally. Another factor is rising confidence among today’s home buyers.

Home sale prices Royal Oak remain relatively low and mortgage rates sit below 4 percent. With demand for homes growing, prices are expected to rise. Home buyers this season may be more likely to get a good “deal” than the buyers of spring or summer.

The National Association of Home Builders (NAHB) released its Housing Market Index (HMI), showing another monthly gain — its ninth in a row.

The HMI — a gauge of homebuilder confidence — rose 1 point to 47 in December 2012, lifting the index to its highest levels since April 2006.

Readings under 50 indicate unfavorable housing conditions for builders. Readings over 50 signal “good” conditions. Coincidentally, the last time that the HMI read above 50 was April 2006, too.

The Housing Market Index is based on a survey which the NAHB sends to its members. The survey asks the nation’s builders to rate the current housing market conditions.

In December, home builders reported gains in two of the three areas surveyed:

• Current Single-Family Sales: 51 (+2 from November 2012)
• Projected Single-Family Sales: 51 (-1 from November 2012)
• Buyer Foot Traffic: 36 (+1 from November 2012)

It’s noteworthy that buyer foot traffic has climbed over nine straight months and is now at it’s highest reported level in nearly 7 years. Low mortgage rates and rising home prices throughout Royal Oak have compelled today’s renters and existing homeowners to consider their home buying options.

This was none more apparent that in the Northeast Region in which builder confidence grew twelve points to 42. The Midwest Region also showed a strong improvement, climbing 2 points to 53. The West and South regions fell slightly between November and December.

For today’s buyers, rising builder confidence may be a signal that home prices are headed higher. Confident home sellers — including the nation’s builders — are less likely to make price concessions into an improving market, or may be less likely to offer free upgrades to buyers.

Therefore, if you are in the market for a newly-built home, consider that you may get the best “deal” by acting sooner rather than later. Mortgage rates are rising and home prices are, too. Six months from now, your costs of homeownership may be higher.

The National Association of Home Builders (NAHB) released its Housing Market Index (HMI) Tuesday, which showed sharp, 5-point increase to 46 for November 2012, marking the seventh consecutive monthly gain for the HMI, and lifting the index to its highest point since May 2006.

Readings under 50 indicate unfavorable housing conditions for builders. Readings over 50 signal “good” conditions. 

The Housing Market Index is a measure of builder confidence, published monthly, based on a survey sent to NAHB members which asks them to rate housing market conditions.

In November, home builders reported gains in two of the three areas surveyed:

• Current Single-Family Sales: 49 (+8 from October 2012)
• Projected Single-Family Sales: 53 (+2 from October 2012)
• Buyer Foot Traffic: 35 (unchanged from October 2012)

Builders report growing demand for new homes as inventories for alternative properties — distressed and foreclosed homes, for example — shrink nationwide.

Even Hurricane Sandy did little to suppress builder confidence.

The NAHB survey was conducted in the two weeks immediately following Hurricane Sandy so the Housing Market Index does reflect builder sentiment during that period. All regions of the country posted confidence gains in November.

The South Region showed a 4-point gain to 43; the West Region showed a 3-point gain to 47; the Midwest Region showed a 3-point gain to 45; and the Northeast Region showed a 2-point gain to 31.  

Despite the gains, builders in Bloomfield Hills and nationwide still report challenges with home appraisals and tight credit conditions. In addition, a shortage of buildable lots in some areas is limiting the ability for home builders to put more single-family homes on the market.

As builder confidence grows, today’s buyers throughout Michigan should prepare for the possibility of higher home prices. Confident sellers are less likely to make price concessions or to offer free upgrades.

If you are in the market for a new home, therefore, the time between now and the New Year may be the best opportunity to make a bid on a home. Starting next year, low prices may be gone.