Builders, Realtors Differ on Home Sale Climate

While they were discussing different vintages, home sellersrnhave a slightly more upbeat outlook on home sales then do the builders of thosernhomes.  Lawrence Yun, Chief Economist ofrnthe National Association of Realtors®rntold Association members late last week that he expects this will be the bestrnyear for existing home sales since 2006 but the index measuring builderrnconfidence about new home sales dropped this month.</p

The National Association of Homebuilders/Wells Fargo HousingrnMarket Index (HMI) released today was down 2 points from April as new homernbuilders expressed disappointment in both current sales condition and buyerrntraffic. The HMI composite was at 54 in May compared to 45 in May 2014 but itrnhas been a roller-coaster year in which the index has varied over a 14 pointrnrange.</p

“Despite this month’s slight dip,rnbuilder confidence in the new home market remains above the 50-pointrnbenchmark,” said NAHB Chairman Tom Woods. “Overall, the second quarter of 2015rnis shaping up to be very solid.” </p

The HMI is derived from a monthlyrnsurvey of NAHB’s new home builder members in which they are asked to gaugernthree factors, current single-family home sales and sales expectations for thernnext six months each on a scale of “good,” “fair” or “poor.” The survey alsornasks builders to rate traffic of prospective buyers as “high to very high,”rn”average” or “low to very low.” Scores for each component are then used torncalculate a seasonally adjusted index where any number over 50 indicates that morernbuilders view conditions as good than poor.</p

The index’s components were mixed inrnMay. The component charting sales expectations in the next six months,rntypically the highest rated of the three factors, rose one point to 64, and therncomponent gauging current sales conditions decreased two points to 59.  The index measuring buyer traffic, which hasrnnot broken through the 50 mark for 116 months, dropped a single point to 39. </p

“Consumers are exhibiting caution, andrnwant to be on more stable financial footing before purchasing a home,” saidrnNAHB Chief Economist David Crowe. “On the bright side, the HMI componentrnmeasuring future sales expectations has been tracking upward all year, mortgagernrates remain low, and house prices are affordable. These factors should spurrnthe release of pent-up demand moving forward.”</p

It was buyer traffic that was cited by Yun in a presentation at the Realtors®rnLegislative Meetings & Trade Expo in Washington, DC as one factorrncontributing to his sales projections for 2015. rnHe said he expects existing home sales to end up around 5.3 million inrn2015, a significant pick up from 4.9 million sales in 2014.  In addition to foot traffic through listed homesrnYun said that sales in the first few months of the year, strong job growth, andrncontinued low interest rates contributed to his optimism.</p

His projected 2015 volume still remains well below the recent high of 7rnmillion homes reached in 2005 but Yun told a Wall Street Journal interviewerrnthat the market is likely a decade away from hitting those levels again.  In 2006, sales fell to 6.5 million and sincernthen have hovered around 5 million sales or fewer.</p

Speaking at the Realtor conference as well, Robert Dietz, vice presidentrnof tax and market analysis NAHB said that he anticipates that 2015 will be thernfirst time during the recovery that the growth of single-family home startsrnwill exceed apartment starts. That would be a significant shift for a recoveryrnthat has been driven by a boom in rental construction while single-family homernconstruction has grown less robustly.</p

Yun noted sizeable pent-up demand for housing but said if interest rates orrnprices rise, making homes less affordable that could hold back sales.  This, he said, shows the need for more newrnhome construction, something Dietz said was unlikely.  He estimated that new home construction will remainrnabout half of normal production levels.  Homernbuilders are being held back by the shortage of construction laborers, therndifficulty of obtaining construction loans and the elusiveness of first-timernhome buyers, he said.</p

And apparently by builder sentiment as well. rnNAHB’s three month moving averages for regional HMI scores were mixed; thernSouth and Midwest each rose one point to 57 and 55, respectively. The Northeastrnfell by one point to 41 and the West dropped three points to 55. </p

It is hard to reconcile the two versions of the new home buying market thatrnhave been on display for many months. rnThe economists who make the forecasts talk about the need for more newrnhome construction and how disappointing the slow rebound has been while at thernsame time builders, who are on the ground, consistently fail to perceive strongrnbuyer demand.

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