Steady job creation, near record-low interest rates and rising home values have been the driving force behind new home sales for about a year now. After climbing to the highest level in more than four years, they dipped a bit in February and March.
Even so, in light of reduced inventories and increasing demand, builders are optimistic, breaking ground on single-family homes at the highest annual rate in four and a half years. However, they are facing some new hurdles that many say are a direct result of the economic downturn.
Along with the financial issues of our new economy, homebuilders are now dealing with rising costs for building materials – suppliers sharply cut back production over the last several years and are slow in responding to the growing demand for lumber and other goods – as well as concerns about the availability of developed lots as well as the increasing costs of land and labor.
As a result, they showed less confidence in the market for newly built, single-family homes in April, with a two-point drop to 42 on the National Association of Home Builders/Wells Fargo Housing Market Index (HMI), which was released this week.
“Many builders are expressing frustration over being unable to respond to the rising demand for new homes due to difficulties in obtaining construction credit, overly restrictive mortgage lending rules and construction costs that are increasing at a faster pace than appraised values,” Rick Judson, National Association of Home Builders (NAHB) Chairman said. “While sales conditions are generally improving, these challenges are holding back new building and job creation.”
Derived from a monthly survey that NAHB has been conducting for 25 years, the HMI gauges builder perceptions of current single-family home sales and sales expectations for the next six months as “good,” “fair” or “poor.” The survey also asks builders to rate traffic of prospective buyers as “high to very high,” “average” or “low to very low.” Scores for each component are then used to calculate a seasonally adjusted index. Any number over 50 indicates more builders view conditions as positive.
The last time the index was at 50 or higher was April 2006. It sunk to 17 in October 2011.
While the HMI component gauging current sales conditions declined two points to 45 and the component gauging buyer traffic declined four points to 30 in April, the component gauging sales expectations in the next six months posted a three-point gain to 53 – its highest level since February of 2007.
“Supply chains for building materials, developed lots and skilled workers will take some time to re-establish themselves following the recession, and in the meantime builders are feeling squeezed by higher costs and limited availability issues,” NAHB Chief Economist David Crowe explained. “That said, builders’ outlook for the next six months has improved due to the low inventory of for-sale homes, rock bottom mortgage rates and rising consumer confidence.”