Homebuilders see “serious” buyers shopping for homes

NAHB: Third consecutive gain in HMI

Potential homebuyers are always shopping around, but according to homebuilders, this time things are getting serious.

Builder confidence in the market for newly-built, single-family homes continued to set records and hit the highest level since January, rising two points to 55 on the National Association of Home Builders/Wells Fargo Housing Market Index for August.

This marks the third consecutive monthly gain to the HMI, with a four-point rise reported last month.

Derived from a monthly survey that NAHB has been conducting for 30 years, the NAHB/Wells Fargo Housing Market Index gauges builder perceptions of current single-family home sales and sales expectations for the next six months as “good,” “fair” or “poor.” 

“As the employment picture brightens, builders are seeing a noticeable increase in the number of serious buyers entering the market,” said NAHB Chairman Kevin Kelly, a homebuilder and developer from Wilmington, Delaware.

The labor market is steadily picking back up, adding 230,000 new jobs on average for the first seven months of this year.

However, while it is improving, the growth might not be in the best places.

According to the most recent jobs report, full-time jobs rebounded modestly, rising by 285,000 in July following June's 523,000 collapse, which was only made up for by part-time job growth of 779,000,

“Builders still face a number of challenges, including tight credit conditions for borrowers and shortages of finished lots and labor,” Kelly said.

According to a recent study conducted by Fannie Mae, 36% of lenders expect to tighten their credit standards as a result of QM rules, while 6% say they expect to ease their underwriting criteria.  

In addition, all three HMI components witnessed gains in August. The indices gauging current sales conditions and expectations for future sales each rose two points to 58 and 65, respectively. The index gauging traffic of prospective buyers increased three points to 42.

“Each of the three components of the HMI registered consecutive gains for the past three months, which is a positive sign that builder confidence appears to be firming following an uneven spring,” said NAHB Chief Economist David Crowe. “Factors contributing to this rise include sustained job growth, historically low mortgage rates and affordable home prices, which are helping to unleash pent-up demand.”

Meanwhile, majority of the homebuilders just released their second-quarter earning reports, recording mixed results.  

Tuesday the U.S. Census Bureau will release July’s numbers for single-family housing starts.

“This morning's rise suggests home builder's confidence in market conditions continues to improve as we move further into the third quarter. Although, contrary to a rise in expectations, tomorrow, July starts are expected to fall 9% and permits 4%, calling into question the validity of industry insiders' optimism,” Lindsey Piegza, Chief Economist with Sterne Agee said. 

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