Daily Economic Update: Home Builders' Confidence

Each day the Research staff takes a look at recently released economic indicators, addressing what these indicators mean for REALTORS® and their clients. Today’s update highlights the Home Builders' Confidence Index.

• Home Builders, not surprisingly, continue to feel blue.  The association’s survey of its members’ confidence is stuck low at 15 in the latest reading, same as last month.  A reading of 50 would be considered neutral.
• This homebuilder survey data is usually released one day ahead of the government data on housing starts and generally is a good guide to new home construction activity.  The data points to about 600,000 housing starts (at an annualized rate) in July.  That would be well below the historical average rate of 1.5 million per year.
• The lackluster homebuilding sector has been one reason for the holdback in the economic recovery.  Without a housing market recovery, the broader economic recovery will be difficult to sustain.
• Builders have very few inventories on the market.  However, they are very cautious about bringing in new products while existing distressed properties continue to reach the market.  Some builders who do see new business opportunities are being hampered by very tight lending on construction loans.
• Meanwhile, the 10-year Treasury yield is at 2.25%.  That should translate into mortgage rates of around 4% on average this week.  The low rates, though welcomed, are not necessarily good news.  It is low because investors believe the economic growth will be lackluster.
• Moderate changes in mortgage rates will not likely have any meaningful impact on home sales, positively or negatively, at this point in the business cycle.  What is more important is a return to normal underwriting standards and normal consumer confidence about the economic outlook.