The housing market has bottomed and appears to be on its long-awaited road to recovery, in my view. But rock bottom mortgage rates and the first-time home buyer tax credit are not luring potential buyers back into the new home market the way many policy makers would like to see as evidenced by the latest data on the industry.
Yesterday, the NAHB/Wells Fargo Housing Market Index slipped from 19 in September to 18 in October, pointing to a drop in builder sentiment as the $8,000 tax credit for first time home-buyers nears expiration at the end of November.
A reading of 50 is neither pessimistic nor optimistic.
As noted by the chart below, a drop in prospective buyer (green line) also impacted confidence. But builders continue to heavily lobby for an extension of the tax credit , noting that “the massive hurdles that builders face in obtaining construction financing and appropriate appraisals on new homes could derail the fragile recovery in housing just as it is starting to take shape.”
A more detailed look at the index since March 2008 is provided below.
Meanwhile, housing starts inched up just 0.5% in September to a seasonally-adjusted annual rate of 590,000 units, while building permits slipped by 1.2% to an annual rate of 573,000 units.
The sluggish numbers last month were mostly due to sluggish starts and permits of multi-family units as single-family starts and permits gained 3.9% and 3.0%, respectively.
Still, the NAHB, in keeping with its lobbying efforts, said, “Builders are being extremely cautious right now in their efforts to maintain a modest inventory of new homes for sale.
“On top of the fact that it is nearly impossible to obtain construction financing for new units, there are widespread concerns about what will happen to demand with the expiration of the $8,000 first-time home buyer tax credit at the end of November.”
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