US home builders gain confidence in June, highest since May 2007

18 June 2012 17:49  [Source: ICIS news]

WASHINGTON (ICIS)--US housing contractors are reporting gradual improvement in the market for new, single-family residences, a survey said on Monday, and confidence levels among them have reached their highest point since May 2007.

The National Association of Home Builders (NAHB) said that its survey of member contractors, called the housing market index (HMI), rose one point in June to 29.

That is the highest reading since the 30 score recorded in May 2007 when the US home building sector was already in steep decline.

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.

The US housing sector is a crucial downstream consuming industry for a wide range of chemicals, resins and derivative products, either as home components or in production of construction supplies.

Since the US recession 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 index dipped to 24 in April, then bounced back to 28 in May before inching up again in June to its current 29 reading.

The modest June gain in the index “is reflective of the continued, gradual improvement we are seeing in many individual housing markets”, said Barry Rutenberg, NAHB chairman.

Rutenberg said more prospective home buyers are taking advantage of record low home prices and mortgage interest rates.

NAHB chief economist David Crowe said that recent trends in HMI data suggest “gradually improving single-family home sales this year”.

However, he cautioned that “recent economic reports have shown some weakening in the pace of [the US] recovery” that could in turn slow a housing sector revival.

“In addition, builders across the country continue to report that overly tight lending conditions and inaccurate appraisals are major obstacles to completing sales at this time,” Crowe added.

With bankers’ memories of the subprime collapse, the resulting banking crisis and recession still strong, mortgage lenders are making loans only to top-credit buyers.

And, even if a buyer and seller agree on a price and the lender authorises the loan, the deal can fall apart when the property appraisal assigns a value to the home that is less than the agreed selling price. The bank will then decline to fund the loan.

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

By: Joe Kamalick
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