US home builders are more confident, but tight credit remains

18 August 2014 16:55 Source:ICIS News

WASHINGTON (ICIS)--Market confidence among US housing contractors improved in August for the third straight month, a key survey said on Monday, although both home builders and would-be home buyers are still constrained by tight credit criteria.

In its monthly survey, the National Association of Home Builders (NAHB) said that its housing market index (HMI) rose by two points this month from July's reading to 55, nearing the most recent high-water mark in this year of 56, registered in January.

However, the August reading of 55 remains below the HMI score of 58 seen in the same month last year.

“As the employment picture brightens, builders are seeing a noticeable increase in the number of serious buyers entering the market,” said NAHB chairman Kevin Kelly.

However, he added, “builders still face a number of challenges, including tight credit conditions for borrowers and shortages of finished lots and labour”.

A finished lot is part of a larger piece of raw land in which a developer has installed paved roads, sewer and water lines, electric utility tie-ins and communications cabling (television and Internet services). Typically two or more housing contractors will contract with the developer to build homes on those finished lots for sale to consumers.

The HMI is a compilation of three subsidiary measures in the market for construction of single-family homes: builders’ current sales, the number of prospective buyers visiting model homes and contractors’ sales expectations 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.

NAHB chief economist David Crowe noted that “each of the three components of the HMI registered consecutive gains for the past three months, which is a positive sign that builder confidence appears to be firming following an uneven spring”.

Crowe also cited improving employment prospects as a positive influence on builder confidence, but he also credited continuing low mortgage interest rates and affordable new-home pricing for helping to “unleash pent-up demand”.

Both Kelly and Crowe blamed continuing tight credit conditions for developers, builders and would-be home buyers for keeping the housing recovery constrained.

The housing market is a key downstream consumer sector for the chemicals industry, driving demand for a wide variety of chemicals, resins and derivative products such as plastic pipe, insulation, paints and coatings, adhesives and synthetic fibres, among many others.

The American Chemistry Council (ACC) estimates that each new home built represents some $15,000 worth of chemicals and derivatives used in the structure or in production of component materials.

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

By Joe Kamalick