Builder Index belies fragile recovery

Issues with credit and appraisals, as well as frustrations with the industry infrastructure causes Builder Confidence Index to slip, again –

BuildersWASHINGTON, March 18 – Builder confidence in the market for newly built, single-family homes paused for a third consecutive month in March, with a two-point reduction to 44 on the National Association of Home Builders/Wells Fargo Housing Market Index (HMI), released today.

“Following eight consecutive months of improvement, builder confidence leveled off in January and has since edged down several points,” noted NAHB Chairman Rick Judson, a home builder from Charlotte, N.C. “Although many of our members are reporting increased demand for new homes in their markets, their enthusiasm is being tempered by frustrating bottlenecks in the supply chain for developed lots along with rising costs for building materials and labor. At the same time, problems with appraisals and credit availability remain considerable obstacles to completing deals.”

“In addition to tight credit and below-price appraisals, home building is beginning to suffer growth pains as the infrastructure that supports it tries to re-establish itself,” explained NAHB Chief Economist David Crowe. “During the Great Recession, the industry lost home building firms, building material production capacity, workers who retreated to other sectors and the pipeline of developed lots. The road to a housing recovery will be a bumpy one until these issues are addressed, but in the meantime, builders are much more optimistic today than they were at this time last year.”

This Builder Confidence Index report is just one indication of just how fragile our current “housing recovery” really is. Builders are facing issues of tight building supplies and manpower that were cause by suppliers pulling back or going out of business during the “Great Recession” and workers in the trades that support building looking elsewhere for work. In addition the banks continue to make things hard on builders as they are also doing with home buyers. Business credit is harder than ever to get, just like mortgages, even though the rates are relatively low.

The market is full of stories about houses going on the market for resale and selling within days; however, the untold stories are about the people who tried to bid on the same place and weren’t successful. There is increasing frustration in the market due to the tight inventory and the propensity of sellers to go for cash offers at the lower end, rather than wait to see if buyers who need a mortgage can get one. Even in the “normal” market of move-up buyers, the challenges that underwriters are throwing into the process can be very frustrating. The “it’s not worth the hassle” factor is definitely rising.

This will all work itself out eventually; but, in the meantime, an extra effort on the part of Realtors® to educate and prepare would-be buyers for the travails ahead is required. While executing a “normal” buy isn’t quite as trying to do as is a short-sale buy, they aren’t as far apart as they used to be. Patience and perseverance are still the by-words of this recovery.

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