Economic woes continued into the first half of August, including a decline in median existing-home prices, stock market fluctuations, a downgraded credit rating, continued high unemployment, and limited access to credit.

In response to these conditions, builder confidence remains unchanged. Builders know that many buyers have been sidelined by tightened lending standards and an upcoming cap on loan limits.

"The uncertain economic climate and concerns about job security are discouraging many potential buyers from exploring a home purchase at this time," said NAHB Chief Economist David Crowe. "While buying conditions are very favorable in terms of prices, interest rates and selection, consumers are worried about what the future will bring, and builders are echoing those sentiments in their responses to the HMI survey."

"Builders continue to confront the same major challenges they have seen over the past year, including competition from the large inventory of distressed homes on the market, inaccurate appraisal values, and issues with their buyers not being able to sell an existing home or qualify for favorable mortgage rates because of overly tight underwriting requirements," said Bob Nielsen, chairman of the National Association of Home Builders (NAHB) and a home builder from Reno, Nev. He noted that 41 percent of respondents to a special questions section of the HMI indicated they had lost sales contracts due to buyers' inability to sell their current homes.

Regionally, the rates of builder confidence are mixed. The Northeast and West were up slightly, while the Midwest declined two-points on the National Association of Home Builders/Wells Fargo Housing Market Index (HMI) for August. The South remained unchanged from July.

Change could be on the horizon, however, as the Mortgage Bankers Association (MBA) most recent report revealed that mortgage applications are on the rise. Mortgage applications increased 21.7 percent from one week earlier, perhaps in response to interest rates taking a dive.

"Amid substantial market turmoil last week, mortgage rates dropped to their lowest levels of the year, and refinance applications jumped more than 30 percent to their highest levels of the year,” said Mike Fratantoni, MBA’s Vice President of Research and Economics. “Over the past month, refinance application volume has increased by 63 percent. Refinance applications for jumbo loans increased by almost 75 percent relative to last week. Despite these low mortgage rates, applications for home purchase have remained little changed through the summer.”

Published: August 16, 2011

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Carla Hill, M.A., works on the Realty Times staff as Managing Editor for our online publication. She also is Producer for the real estate news channel, seen daily on RealtyTimes.com and on video newsletters nationwide.