US Builders Upbeat for the First Time This Year

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American real estate firms are finally feeling breathing easy. For the first time this year, the confidence index of a leading association of developers of newly built, single-family homes rose in June, reflecting builders' belief that the conditions were looking up at last.
The National Association of Home Builders/Wells Fargo Housing Market Index (HMI), released on Monday, went up four points to reach a level of 49 - one point shy of the threshold for what is considered good building conditions.
The reading topped forecasts by independent analysts; for instance, those polled by Reuters had expected the index to rise at slower pace to 47.
Last month, the reading was 45, the weakest since May last year. NAHB says construction of one single-family home creates three jobs and generates $90,000 in tax revenues; a downturn in this segment means the economy is deprived of a traditional source of revenue, impacting overall national growth.
€After several months of little fluctuation, a four-point uptick in builder sentiment is a welcome sign and shows some renewed confidence in the industry,€ said NAHB Chairman Kevin Kelly, a home builder and developer from Wilmington, Del.
€However, builders are facing strong headwinds, including the limited availability of labour.€
Washington, May 28: US house prices beat projections and market reports to chalk gains in the first three months of the year, separate reports from official and industry quarters say, giving rise to the hope that despite recent indications to the contrary, the American real estate sector is set to beat the odds.
According to the Federal Housing Finance Agency (FHFA), the watchdog for American housing finance sector US house prices rose 1.3 percent in the first quarter of 2014, compared to the October-December 2013 period.
This was the 11th consecutive quarterly price increase in its purchase-only, seasonally adjusted house price index, the regulator said in a May 27 statement.
€Although the first quarter saw relatively weak real estate transaction activity, in part due to seasonal factors, home prices continued to push higher in the first quarter,€ said FHFA Principal Economist Andrew Leventis in the statement.
Alongside, the latest S&P/Case-Shiller Home Price Index for 20 US cities released the same day showed house prices notching a seasonally-adjusted increase of 1.2 percent in March across the country as compared to that of the preceding month.
In comparison, economists surveyed in a Bloomberg poll had forecast an average monthly increase of just 0.78 percent.
HIGH CONFIDENCE
Derived from a monthly survey that NAHB has been conducting for 30 years, the NAHB-Wells Fargo 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 for each component are then used to calculate a seasonally adjusted index where any number over 50 indicates that more builders view conditions as good than poor.
Last month, NAHB Chairman Kelly had said that with the index showing little signs of fluctuation after four months, it was clear that builder sentiment was becoming more in line with the market reality of a continuing but modest recovery.
€However, builders expressed some optimism that sales will pick up in the coming months,€ said Kelly, a home builder and developer from Wilmington, Delaware.
NAHB Chief Economist David Crowe had said builders were waiting for buyers to feel confident about their financial security once more. €Once job growth becomes more consistent, consumers will return to the market in larger numbers and that will boost builder confidence,€ Crowe said last month.
Apparently, this has begun happening in June. As per the latest AHB data, all three index components posted gains in June. Most notably, the component gauging current sales conditions increased six points to 54.
The component gauging sales expectations in the next six months rose three points to 59 and the component measuring buyer traffic increased by three to 36.
Looking at the three-month moving averages for regional HMI scores, the South and Northeast each edged up one point to 49 and 34, respectively, while the West held steady at 47. The Midwest fell a single point to 46.
€Consumers are still hesitant, and are waiting for clear signals of full-fledged economic recovery before making a home purchase,€ said Crowe, analysing the June reading. €Builders are reacting accordingly, and are moving cautiously in adding inventory.€
PRICES UP
In its statement last month, FHFA said its seasonally adjusted monthly home price index or HPI for March was up 0.7 percent from February, while compared with last year, house prices rose 6.6 percent from the first quarter of 2013 to the first quarter this year.
Prices of other goods and services rose only 0.8 percent, FHFA said, adding that the inflation-adjusted price of homes rose approximately 5.7 percent over the latest year.
The HPI is calculated using home sales price information from mortgages sold to, or guaranteed by US mortgage giants Fannie Mae and Freddie Mac, and is a gauge of price movements in repeat sales or refinancing on the same single-family homes by the two mortgage firms.
Both HPI and the S&P/Case-Shiller Index - which monitors independent transactions for single-family homes - increased substantially in the first quarter year over year: the national Case-Shiller rose 10.5 percent and the FHFA's quarterly purchase-only index rose 6.6 percent.

€The quarterly indexes associated with these two house price measures also showed rapid paces of house price appreciation continuing through the first quarter,€ Silver said.One major impediment to buyer confidence retuning, according to new research from the Federal Reserve Bank of San Francisco, is the spike in mortgage rates since the middle of last year that has made borrowing more expensive.
In the research paper released recently, San Francisco Fed Senior Economist John Krainer said it was higher mortgage rates that had dampened home sales, with buyers facing constraints on the size of loans they can secure and on loan payment amounts.
€Since individual incomes likely did not rise over this short period, and house prices continued to grow in most regions, the rise in mortgage rates was expected to have an unambiguous negative impact on sales,€ Krainer said.
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