US home builders’ confidence falls for third month in a row

15 April 2013 17:41  [Source: ICIS news]

WASHINGTON (ICIS)--Market confidence among US home builders fell in April for the third consecutive month, a key survey indicated on Monday, with contractors hampered by continuing tight credit and rising costs for materials and labour.

The National Association of Home Builders (NAHB) said that its monthly survey of housing contractors found that because of rising costs for building materials and skilled labour, “builders registered less confidence in the market for newly built, single family homes in April.”

The association said that its survey of builders, known as the housing market index (HMI), fell by two points in April from March to a reading of 42.

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 topped 70 at times.

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

After bouncing around in the middle teens for the rest of 2009 through most of 2011, the HMI measure of builder confidence began an apparent recovery in early 2012.  The index rose into the upper-20s by midyear and then reached its most recent high of 47 in December last year and January this year.

But the index slipped to 46 in February, dropped by two points to 44 in March and now has slid another pair of points to 42.

NAHB chairman Rick Judson said that many builders are unable to meet rising demand for new homes “due to difficulties in obtaining construction credit, overly restrictive mortgage lending rules and construction costs that are increasing at a faster pace than appraised values”.

NAHB chief economist David Crowe said more than half of the builders surveyed “reported an appraisal below the cost of production”. 

In other words, a builder might spend $200,000 (€152,000) on materials and labour, hoping to sell the house for $250,000 – but the bank that is to finance purchase of the home values the property at only $190,000 or even less.

On its face, said NAHB, the housing market looks promising. 

Mortgage loan rates remain at or just above record lows, home prices, while rising, also are still reasonable, and there is pent-up demand for new homes.

But many builders are unable to get development funding from lenders, and those that can get production loans often run into materials and labour costs that sharply narrow or even wipe out profit potential.

“While sales conditions are generally improving,” said Judson, “these challenges are holding back new building and job creation.”

The housing market, especially new home construction, is a key downstream consuming sector for chemicals and resins.

($1 = €0.76)

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

By: Joe Kamalick
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