Builder Confidence Up; Starts and Permits Down

Two separate reports issued this week are pointing in different directions when it comes to new home builders.  While the Housing Market Index increased to 17 after four months at 16, home starts and permits for future construction were both down in February. The seemingly conflicting numbers point to the uncertainty that exists in today’s housing market.

HOUSING MARKET INDEX INCREASES

Builder confidence, as measured by a survey of the nation’s homebuilders, finally moved from its four-month stall at 16 by increasing to 17.  While this seems like a small gain, the upward movement was a welcomed change to the stagnant readings since October 2010. More significantly, the result equals the highest point in the survey since May 2010 when the Federal Homebuyer Tax Credit Program had just ended.

The improved survey results stem from increased confidence in the overall economic recovery along with the start of the spring homebuying season.  Typically, more homes are sold in the spring than in any other season of the year and with signs that our economy is gaining strength, there is optimism that this will be a strong year for spring sales.

However, concerns still exist for builders and they haven’t changed much in recent months. The inability to obtain credit to put new homes on the ground before they are sold (known as “Spec Homes”) is limiting the amount of building that is currently underway. The costs of materials are climbing even though home prices are not, putting more pressure on builders. Finally, difficulties with appraisals continue to hinder the new home market as many homes are being appraised at a level that is below the cost of construction. This drastically impacts the ability for the buyer to obtain a mortgage loan at the full list price of the new home.

To see the full press release from the National Association of Home Builders, click here.

STARTS AND PERMITS DOWN

Housing starts for February were reported to be down considerably from January. February saw an annualized rate of 479,000 starts, equaling a 22.5% drop from the previous month. The sharp decrease was attributed to uncertainty in the market regarding energy costs, interest rates, and higher mortgage standards among other things.

Reading further into the numbers, every region in the country experienced a decline, but some much more than others.  For us here in Austin, the news wasn’t nearly as bad as the South Region saw a drop of only 6.3%, the smallest of the four regions. By contrast, the Midwest Region experienced a 48.6% drop. The Northeast Region was down 37.5% and the West Region declined by 28%. If not for the South Region, the results would have been much, much worse – proof once again that Texas and the south will likely lead the country out of this recession.

The overall drop of 22.5% in February came from an 11.8% decrease in single family home starts and a 46.1% drop in multi-family starts. Multi-family numbers are always much more volatile and are less significant to those of us in the residential housing industry as our focus is primarily on single family units.

To further complicate the issue, permits for new construction also decreased in February. Permits dropped 8.2% from January and represented a record-low pace. Again, regionally the results were quite varied.  The South Region saw a small drop of only 1.4%, while the Northeast Region had the largest decline at 27.8%. Single family permits dropped 9.3%, however, showing signs that this sector will continue to be challenged in the near future.

To see the full press release from the National Association of Home Builders, click here.

To read a previous blog article explaining the importance of Housing Starts, please click here.

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About missionmortgage

A full-service professional mortgage banker providing lending in Texas for over 25 years. Our main office is located at 901 S. Mopac Expwy, Barton Oaks V- Suite 120, Austin, TX 78746 with branches in Lakeway, Houston, and Sealy. Mission Mortgage has been ranked as a Top 10 Mortgage Company in Austin for the past 7 years (Austin Business Journal).
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