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Builder confidence in US continues to improve

WASHINGTON: Builder confidence in the US market for newly built, single-family homes improved for a fourth consecutive month in August according to the National Association of Home Builders/Wells Fargo Housing Market Index (HMI), released on Wednesday.

The index gained two points to 37 which follows a six-point increase in July and brings the index to its highest level since February 2007.

“From the builder’s perspective, current sales conditions, sales prospects for the next six months and traffic of prospective buyers are all better than they have been in more than five years,” said Barry Rutenberg, chairman of the National Association of Home Builders (NAHB).

“While there is still much room for improvement, we have come a long way from the depths of the recession and the outlook appears to be brightening.”
“This fourth consecutive increase in builder confidence provides further evidence of the gradual strengthening that’s occurring in many housing markets and providing a needed boost to local economies,” said NAHB chief economist David Crowe.

“However, we are still at a very fragile stage of this process and builders continue to express frustration regarding the inventory of distressed properties, inaccurate appraisal values, and the difficulty of accessing credit for both building and buying homes.”

Derived from a monthly survey that NAHB has been conducting for the past 25 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.”

The survey also asks builders to rate traffic of prospective buyers as “high to very high,” “average” or “low to very low.” Scores from each component are then used to calculate a seasonally adjusted index where any number over 50 indicates that more builders view sales conditions as good than poor.

Every HMI component posted gains in August. The components gauging current sales conditions and traffic of prospective buyers each rose three points, to 39 and 31, respectively, while the component gauging sales expectations in the next six months inched up one point to 44. All were at their highest levels in more than five years.

Meanwhile, the strengthening house prices have contributed to slightly lower housing affordability in the second quarter (2Q).

The NAHB/Wells Fargo Housing Opportunity Index (HOI) released on Tuesday reveal that 73.8% of all new and existing homes sold in 2Q were affordable to families earning the national median income of US$65,000. This is down from a record high 77.5% of homes that were affordable to median-income earners as of 1Q, thanks to rising prices.

A full 92 % of metros covered in the latest HOI saw their median home prices rise between 1Q and 2Q.

“While interest rates and overall housing affordability remain very favourable on a historic basis, the decline in the latest HOI is a positive development because it is another signal that the housing recovery is starting to take root, and it lends needed confidence to prospective buyers and sellers who have been reluctant to move forward in the current marketplace,” said Rutenberg.

The HOI is a measure of the percentage of homes sold in a given area that are affordable to families earning that area’s median income during a specific quarter. Prices of new and existing homes sold are collected from actual court records.


This article appeared in The Edge Financial Daily on 17 August, 2012.

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