Home Builder Confidence Rises

The National Association of Home Builders / Wells Fargo Housing Market Index (HMI) for October showed that home builder confidence in the new, single-family homes sector rode three points. It was the first upward trend in the index since June, according to the survey.

A reading in the index below 50 indicates negative sentiment about the market, and the last time the index was above 50 was April of 2006. All three of the HMI’s component indexes showed improvement in October. The index of current sales conditions rose three points to 16, the index for sales expectations over the next six months rose 5 points to 23, and the index of prospective buyer traffic gained two points to 11.

All four regions of the country enjoyed October gains in builder confidence, led by the South and West, with four point gains to 18 and 12, respectively. The Northeast and Midwest, meanwhile, posted gains of a single point, to 17 and 13, respectively. Home sales have been hindered in recent months by slow job growth and continued high levels of unemployment across the nation. Despite near record low interest rates, housing has suffered its worst summer in more than a decade.

Sales may pick up in the fall, according to analysts, but only by a slim margin. A gargantuan backlog of distressed properties is expected to dominate the market and provide stiff competition for builders. A number of the foreclosures could be challenged in courts thanks to recent revelations that banks processed them without reviewing documents as required by law. The scandal over foreclosure documents could make potential buyers hesitant to buy foreclosed properties due to fears of getting sued. The fears could drive prices of distressed properties even lower.

Slow sales usually translates to fewer jobs within the construction industry, which is normally a driving force of recovery behind a recession. On average, every newly-constructed home creates three jobs for a period of a year and generates about $90,000 in taxes, according to the builders’ trade group.