Builder Confidence Remains High, But For How Long?
The National Association of Home Builders released its Housing Market Index for November on Monday. This month's HMI reading was 54 against expectations of a reading of 55. October's reading was also 54 after being downwardly revised.
Readings over 50 generally indicate that a majority of builders surveyed are confident in current housing market conditions, but the current pause came after two months of decline in home builder confidence. While the short term index readings are lower than in past months, the HMI is currently 20 percent higher than last year.
David Crowe, chief economist for NAHB said that "the fact that builder confidence remains above 50 is an encouraging sign." Mr. Crowe also cited federal debt and budget issues as factors that keep builders and consumers from building and buying homes.
Fluctuating Mortgage Rates Of Concern To Builders, Home Buyers
Home builders are also subject to the impact of volatile mortgage rates, which can create affordability issues for first time and moderate income home buyers. There is some good news concerning mortgage rates as the Federal Reserve announced its plant to keep its quantitative easing program in effect in the coming months.
QE was implemented in 2012 and consists of the Fed purchasing $85 billion per month is treasury and mortgage-backed securities with the goal of keeping long-term interest rates and mortgage rates low.
Home builder confidence readings are not in synch with construction rates, as builder confidence was rapidly driven by excessive demand for homes against minimal inventories of available homes in many areas.
Components of November's HMI provide more precise indications of builder confidence. November's reading for confidence in sales of single family homes within the next six months fell from 61 in October to 60 in November.
Builder sentiment for current home sales was unchanged at 58 and the November reading for builder confidence in buyer foot traffic fell by one point from 43 in October to 42.
Regional Home Builder Confidence Readings Mixed
Regional builder confidence readings for November were as follows:
Northeast: This region gained 14 points with a reading of 44 for November.
South: Builder confidence rose by one point to a reading of 55.
Midwest: November's reading declined by eight points to 54.
West: The reading for November was one point lower at 58.
Home sales are typically slower during the holiday season and winter months.
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