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Builder Confidence Rises in December

Written by Carla Hill on Tuesday, 20 December 2011 6:00 pm
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Builder confidence rose in December according to the National Association of Home Builders. This is the third straight month of improved confidence.

The National Association of Home Builders/Wells Fargo Housing Market Index (HMI) indicates this is the highest level the market has seen since May 2010.

"This is the first time that builder confidence has improved for three consecutive months since mid-2009, which signifies a legitimate though slowly emerging upward trend," said NAHB Chief Economist David Crowe. "While large inventories of foreclosed properties continue to plague the most distressed markets and consumer worries about job security and the challenges of selling an existing home remain significant factors, builders are reporting more inquiries and more interest among potential buyers than they have seen in previous months."

This rise was calculated by looking at builder perceptions of what single-family home sales look like now and where builders think they'll be in the next six months.

On the topic of current sales, builder confidence rose two points on the HMI scale. Expectations for sales over the next six months rose one point. The largest rise was seen in builders' reports on traffic of prospective buyers, which was up three points to the highest levels since May 2008.

Real estate is a largely local commodity. Regionally, the largest rise in builder confidence for December was seen in the South, which posted a 4-point gain. The West saw a one point gain. The Midwest was unchanged and the Northeast slid down the scale by one point.

How does a rise in builder confidence affect today's buyers and sellers? For starters, builders have indicated that buyers are placing more inquiries. Home permits have "spiked" according to CNN. Consumer confidence may be returning on the heels of a drop in the unemployment rate. This renewed confidence fosters growth in buyer and seller communities, hopefully raising the value or homes and offering new jobs.

The question is mostly, however, about how the confidence and actions of today's buyers and sellers affects today's builders. Builders have had a tough time since the housing bust several years ago. Many smaller builders found their market of eager homebuyers shrink as the recession hit and would-be buyers decided to wait out the market or fell on hard times. Other builders have had difficult times procuring credit for projects. Discount pricing on distressed properties have caused many builders to sell new homes at cost. Construction workers lost over a million jobs during the recession, a number that has yet to rebound.

Confidence is still fighting an uphill battle against tightened lending, high unemployment, and a continued debt crisis in the U.S. and in Europe.

"While builder confidence remains low, the consistent gains registered over the past several months are an indication that pockets of recovery are slowly starting to emerge in scattered housing markets," said Bob Nielsen, chairman of the National Association of Home Builders (NAHB) and a home builder from Reno, Nev. "However, the difficulties that both builders and buyers continue to experience in accessing credit for new homes are holding back potential sales even in areas where economic conditions are improving."

Markets are improving all across the country. Many have seen consistent improvements in home sales, home prices, and employment over the last six months. If this trend continues, builder confidence should return with even more gusto.

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