Always on the lookout for humor, I read with interest Brena Swanson’s article in HousingWire this afternoon, “NAHB: Homebuilder confidence reaches 6-month high,” as this comes on the heels of reports coming out of the National Association of Realtors recently indicating that today is a good time to buy or sell real estate.

Ms. Swanson noted, “Builder confidence in the market for newly-built, single-family homes hit a major milestone in July, rising four points to a reading of 53 and showing good sales conditions, according to the National Association of Home Builders/Wells Fargo Housing Market Index.”

Wow! How exciting! I guess the housing recovery is real after all… not.

The article goes on to quote NAHB Chief Economist David Crowe saying that an improving job market goes hand in hand with a rise in builder confidence and that “As employment increases and those with jobs feel more secure about their own economic situation, they are more likely to feel comfortable about buying a home.”

While I could make a case that no one wants to see the housing industry get back on a firm foundation more than yours truly, there is too much evidence mounting that the overall housing market is headed for another downturn.

If those builders indicating confidence in current market conditions are truly going to increase construction activity while there are so many indicators pointing to this downturn, then I submit that the increased activity may lead to even more negativity going forward as the units built will become standing inventory.

This increase of available homes on the market will contribute to decreased housing prices in many markets. Any jobs created will be short lived. And so many jobs being created today that seem to indicate an improved unemployment rate are overwhelmingly part-time or lower paying jobs. This will do little to ignite the housing market.

In contrast to the improved confidence of some number of home builders participating in the above-mentioned statistic, I offer the following indicators to ponder about the current and future health of the housing market (which I have cited in other online and print articles, but need to reiterate here):

  • There remains a "Shadow Inventory" of properties that have been foreclosed on but have not been released into the marketplace which has helped to artificially drive up home prices
  • Foreclosure backlogs remain in states that have judicial foreclosure processes
  • The dramatic influx of institutional investors buying up pools of REO properties to turn them into rentals also contributed to rising home prices (but now these institutional investors are selling off part of their portfolios because their business model was flawed by not taking into consideration of decreasing home values/prices and their vacancy rates are rising)
  • Fewer and fewer first-time buyers are entering the market due to more stringent mortgage lending guidelines
  • The "Affordability" (or lack thereof) has stalled the market and in some areas prices are dropping
  • Mortgages that were modified under the Treasury Department's HAMP program are beginning to be recast and the ensuing higher interest rates will force more home owners into foreclosure
  • The proliferation of FHA loans has created a scenario where these low-interest loans have become the "new sub-prime" loans
  • The Federal government is encouraging Wall Street to again create mortgage-backed securities
  • Some lenders are lowering their FICO Score requirements
  • The Federal government is “encouraging” lenders to make loans to low-income buyers... again
  • Homeowners are once again using their “equity” as a kind of ATM, as pointed out in The Wall Street Journal article of July 14 by AnnaMaria Andriotis, “More Homeowners Are Tapping Their Home Equity.”
  • Fed Chairman Janet Yellen indicated before Congress that interest rates need to be raised. This will not be a “boon” to lenders or potential home buyers
  • THERE HAS BEEN NO REAL EFFORT TO CREATE DECENT-PAYING JOBS IN AMERICA —  Without them, the economy cannot grow and the housing industry will remain stagnant or worse (despite what some "celebrity" economists say, as the housing market goes, so goes the general economy... this is fact, not fiction)

On top of this, you can add the contraction of the United States' economy in Q2 of nearly 3%, clearly demonstrating the weakness of the economy. Why so many home builders would feel more confident today than they did in recent years is as big a mystery to me as is any reason the NAHB would have to put out information that is so blatantly misleading.