Two Sides to Builder Sentiment Index

The home builders sentiment index rose four points to a still relatively low 19 in April after languishing below that level for half a year.  The bump is due to sales and traffic seeking to qualify for the home buyer tax credits that expire at the end of this month.  Home buyers must have a signed sales contract by April 30 even though they don’t have to close and take possession before July 1.  The urgency of a deadline as well as a particularly poor February turned builder sentiment around for the index sub components measuring traffic by four points and current sales by five points.

But, builders’ expectation for the next six months rose only one point and, with the exception of the unusual February low, that sub component remains lower than it was since this time last year when the market was just beginning to turn.  The relatively neutral attitude toward the next six months is driven by continued foreclosures and short or distressed sales competing with the new home market.  Builders see these competitors holding down house prices and making it very difficult to sell at a price that covers costs.  Distressed sales further aggravate low appraisals and failed sales because the buyers cannot come up with additional equity.

A consistent bright spot remains at the lower end of the price distribution.  Starter and modest homes are selling well in many markets because first time home buyers do not have to sell a home and, for those with steady jobs, see the advantages of low prices and low interest rates could be almost as fleeting as the home buyer credit.   Greater activity at the lower ends of the price spectrum is likely to continue to be the best market as current home owners assess their ability to sell their home and compare the resulting cash to their desires and price ranges in the next house.



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