US home builders recover some confidence in housing market

15 May 2012 16:52  [Source: ICIS news]

WASHINGTON (ICIS)--US housing contractors are again confident about improving prospects for new home construction, a key survey said on Tuesday, indicating that a recent drop in builders’ expectations was not the beginning of yet another downward trend.

The National Association of Home Builders (NAHB) said that its monthly survey of member contractors showed a rare 5-point gain in the housing market index (HMI), climbing to 29 for May from the downwardly revised April figure of 24.

The April HMI originally had been set at 25 and was the first drop in seven months.

The HMI is a compilation of three subsidiary measures: home builders’ current sales of single-family homes; the number of prospective home buyers visiting model homes; and contractors’ expectations for home sales over the next six months.

On the 1-100 HMI scale, a reading of 50 or above indicates that home builders are confident about their prospects over the next six months.

During the US housing boom years of 2002–2005, the housing market index had held steady in the mid-60s, and even reached the upper-70s at times.

At the bottom of the US 2008-2009 recession, the HMI hit an all-time low of 8 in January 2009.

Since the US recession officially ended in June 2009, the HMI had remained at or below the 20 level until December last year when it edged up to 21, climbed to 25 in January this year and advanced to 28 for both February and March.

The April decline to 24 triggered concern that the slowly developing increase in builder confidence – and renewed hopes for a housing industry recovery – had suffered a significant setback.

However, with the May index reading, “it seems we have resumed the gradual upward trend in confidence that started at the beginning of this year”, said NAHB chairman Barry Rutenberg.

“Stabilising prices and excellent affordability are encouraging more people to pursue a new home purchase,” he added.

“Builders in many markets are reporting that buyer traffic and sales have picked back up after a pause this April,” Rutenberg said.

“The fact that the HMI has returned to trend is an excellent sign that firming home values, improving employment and low mortgage rates are drawing consumers back,” said NAHB chief economist David Crowe.

Crowe noted, however, that “home building still has quite a way to go toward a fully healthy market”.

Crowe said that the housing industry still faces “significant impediments … with regard to builder and consumer access to credit, inaccurate appraisals and, more recently, rising materials prices”.

The May HMI reading of 29 is just one point above the March measure of 28 and is still some 25 points below what would be considered a normal market.

The new home construction sector is a key downstream consuming industry for chemicals and resins, driving demand for a wide variety of chemical products and derivatives such as plastic pipe, adhesives, insulation, roofing and siding materials, paints and coatings and synthetic fibres.

The turnaround in home builder confidence comes amid other conflicting signals about the status of the US housing industry.

US pending home sales rose in March, but in the same month sales of new homes and existing residential properties both declined.

Paul Hodges studies key influences shaping the chemical industry in Chemicals and the Economy

By: Joe Kamalick
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