Homebuilder optimism rises; local builder seeing ‘good traffic’
U.S. homebuilders are gradually growing more optimistic about the depressed housing market and believe homes sales could pick up sharply at the beginning of 2012.
The National Association of Home Builders/Wells Fargo said its builder sentiment index rose for a fifth straight month in February to 29, up from 25 in January. The index has climbed 15 points since September and is now at its highest level since May 2007.
Builders have generally become more hopeful about current sales, sales six months out, and foot traffic, the report shows.
Even with the brighter outlook, the industry has a long way to go. Any reading below 50 indicates negative sentiment about the housing market. The index hasn’t reached 50 since April 2006, the peak of the housing boom.
"I feel like the market’s doing great things," said Eric Stafford, president of operations for Discovery Homes in Las Vegas. "We’re seeing good traffic, quality people and REOs (real estate-owned homes) are tightening up a bit."
Discovery Homes had 30 sales in 2011 and will probably increase that by 50 percent this year, Stafford said. He’s already got seven sales in contract. The builder just opened new models in the Mountain’s Edge community and was able to raise the base price by $20,000, he said.
A key reason homebuilders are more optimistic is that they are seeing more people express interest in buying a home. And rising interest has occurred alongside other improvements that suggest the troubled housing market could pick up after four weak years.
Sales of previously occupied homes rose in December for a third straight month. Mortgage rates have never been lower. And home construction picked up in the final quarter of last year.
However, home prices continue to fall, and builders keep slashing prices to stay competitive. Last year was the worst for new-home sales since 1963.
Las Vegas-based Home Builders Research reported 3,894 new home sales in 2011, the lowest number since the firm began tracking the market in 1988. It’s down from about 39,000 in 2005 and from 23,000 in 2001.
"We believe we will see demand for new housing at a similar level as 2011," Home Builders Research President Dennis Smith said. "Some things in the local economy are improving, not because of a vibrant growing community, but rather due to adjustments made by individuals and businesses. They have rebooted to different levels based on circumstances or necessity."
Smith projected new-home sales to rise to about 4,000 this year. New-home building permits are expected to increase from 3,732 in 2011 to 3,850 this year.
New homes make up a small portion of housing sales. But they have an outsize impact on the economy. The builder trade group says each new home built creates an average of three jobs for a year and generates about $90,000 in taxes.
Builders are struggling to compete with foreclosures, which have forced down prices of previously occupied homes. And many people are finding it hard to qualify for loans or meet higher required down payments.
Low appraisals are scuttling some deals after contracts have been signed. As a result, some people who want to buy a new house are holding off because they can’t sell their home.
"One thing we know about Vegas is, values are declining," appraiser Michael Brunson of Brunson-Yiu said. "The key to recovery is getting rid of our inventory. Let all those foreclosure properties work through the system. It’s one of the things slowing our recovery. Availability of credit is another big deal."
Those in a position to buy are benefiting from lower prices and mortgage rates. The average rate on the 30-year fixed mortgage is at record lows below 4 percent. Yet those factors have done little to boost home sales.
"Let’s not forget that over half of homeowners with a mortgage in Southern Nevada are underwater and stuck in their home unless they try a short sale or default on their mortgage," housing analyst Smith said. "Until prices begin to move upward, this issue will continue to deflate consumer confidence and restrict their movement."
Builders have pointed to some regional pockets of strength. New Orleans, Pittsburgh and other smaller areas of Texas, in particular, have reported increased buying.
The Associated Press contributed to this report.
