Homebuilder Confidence Improves

Earlier this week I read this article on CNBC:

Not since the spring of 2008 have the nation’s homebuilders felt this good about the potential for new business. An industry association survey measuring builder sentiment rose for the third straight month in December, with significant gains in the component measuring traffic of perspective buyers.

The National Association of Home Builders/Wells Fargo Housing Market Index edged up two points from a downwardly revised number to 21.

“This is the first time that builder confidence has improved for three consecutive months since mid-2009, which signifies a legitimate though slowly emerging upward trend,” said National Association of Home Builders Chief Economist David Crowe. “While large inventories of foreclosed properties continue to plague the most distressed markets and consumer worries about job security and the challenges of selling an existing home remain significant factors, builders are reporting more inquiries and more interest among potential buyers than they have seen in previous months.”

Difficulty in obtaining credit, however, is still a major hurdle to recovery for the beleaguered builders, whose sales are running at half the rate they were during the recent housing boom. Industry analysts say there is considerable pent-up demand for new homes, given how many Americans have either moved in with family or chosen to rent in the wake of the housing crash, but that demand is still on the sidelines.

Potential buyers are suffering from a deep lack of confidence not just in housing but in the overall economy and job market; tighter mortgage underwriting standards are also holding much of the market back.

Builder confidence gained the most strength in the South and slipped slightly in the Northeast. Out West, where much of the overbuilding took place during the last decade, sentiment is still improving, but a significant share of smaller builders have gone out of business.

That has opened the door for big builders, like Miami-based Lennar, to expand. Lennar [LEN 19.60 -0.38 (-1.9%)] announced it acquired control of approximately 650 finished home sites in 20 communities in the Pacific Northwest for an undisclosed price from Seattle-based Premier Communities. This is the first entry into a new market by Lennar in almost two years.