Homebuilder Confidence Stays Flat

Home builder confidence 2000-2011

Homebuilders are feeling worse about the market for new homes nationwide.

With construction credit tight and competition from foreclosures increasing, the National Association of Homebuilder’s Housing Market Index slipped 1 point in September, falling to levels just below the index’s 12-month average.

The HMI measures homebuilder confidence nationwide. It’s the result of 3 separate homebuilder surveys, each designed to measure a specific facet of the homebuilder’s business.

  1. How are market conditions for the sale of new homes today? 
  2. How are market conditions for the sale of new homes in 6 months?
  3. How is prospective buyer foot traffic?

Each component survey showed a drop-off from August. Responses fell 1 point, 2 points, and 2 points, respectively. Together, September’s composite reading was 14 out of a possible 100 points. Readings over 50 are considered favorable. 

The HMI not been above 50 since April 2006.

With homebuilder confidence low — and stagnant — buyers of new homes should remain alert for “deals”. Builders are more likely to offer free upgrades and other concessions to incoming buyers. The availability of such deals may increase as the seasons change and as the year comes to a close.

Low mortgage rates are making new homes attractive, too. Last week, 30-year fixed rate mortgage rates fell to their lowest levels of all-time. As compared to just 8 weeks ago, 30-year fixed rate mortgage payments are lower by 5 percent at all loan sizes, down $27 per month per $100,000 borrowed.

Home Affordability Still Tops Nationwide

Home Opportunity inde 2005-2011Home affordability slipped slightly last quarter, dragged down by rising mortgage rates and recovering home prices in Florida and nationwide.

The National Association of Home Builders reports a Q2 2011 Home Opportunity Index reading of 72.6. This means that nearly 3 of 4 homes sold last quarter were affordable to households earning the national median income of $64,200.

Q2 2011 marks the 10th straight quarter — dating back to 2009 — in which the index surpassed 70.

Prior to 2009, the index had never crossed 70 even one time.

However, we must remember that the Home Affordability Index is a national survey. From region-to-region, and town-to-town, home affordability varied.

In the Midwest, for example, affordability was highest. 14 of the 15 most affordable markets nationwide were spread throughout Ohio, Michigan, Illinois and Indiana. Only Syracuse (#9) cracked the list from other regions. 

The top 5 most affordable cities in Q2 2011 were:

  1. Kokomo, IN (95.8%)
  2. Wheeling, WV (94.7%)
  3. Lansing, MI; East Lansing, MI (94.4%)
  4. Bay City, MI (94.3%)
  5. Youngstown, OH; Warren, OH; Boardman, OH (93.7%)

By contrast, the Northeast Region and Southern California ranked as the least affordable markets. Led by the New York-White Plains, NY-Wayne, NJ area, 7 of the 10 least affordable areas were in New York, New Jersey, and California. For the 13th consecutive quarter the New York metro area was ranked “Least Affordable”.

Just 25.2 percent of homes were affordable to households earning the area median income there.

The rankings for all 225 metro areas are available for download on the NAHB website.

Homebuilders Expect A Soft Winter Housing Market

Homebuilder confidence 2009-2011

Two months after posting their worst confidence reading of 2011, home builders say they foresee no improvement in the immediate- or medium-term market for new homes nationwide.

In August, for the second straight month, the Housing Market Index read 15.

The HMI is a monthly housing survey, published by the National Association of Homebuilders. It’s scored on a scale of 1-100 with readings over 50 suggesting favorable home builder conditions. Readings under 50 suggest unfavorable conditions.

The Housing Market Index has been below the 50-point benchmark since 2006.

To calculate the HMI, home builders are asked 3 separate questions, each addressing the different element of the new home sales business.

  1. How are today’s market conditions for the sale of new homes?
  2. How do you expect market conditions to be 6 months from now?
  3. How are the current foot traffic of prospective buyers?

Based on the August answers to these questions, builders are witnessing an improvement with the current market, partially fueled by low mortgage rates, but expect momentum to fade into early-2012.

As a home buyer , this may bode well for you. If you can wait to buy a home, you may find builders more willing to concede on price or upgrades.

The other side of that conversation, though, is that while you may save money on the home, you may lose it in your monthly payments. Rising mortgage rates can quickly zap your savings — adding tens of thousands in interest costs to your budget long-term.

For now, home prices remain low and mortgage rates do, too. Home affordability is at an all-time high. Take advantage of what the market gives you.