Home Builders Asked To Start Building: as reported by Destiny Homes

Destiny Homes comments on yesterday's Home Builders Confidence Report prepared by the National Association of Home Builders in partnership with Wells Fargo. Another point gained in builder confidence signals that the housing recovery is moving forward in the midst of tight credit, difficult appraisals and the limited inventory of buildable lots. Destiny Homes, a Twin Cities based home builder, is an expert at custom luxury home builds and major residential Wayzata renovation projects.

Highest Level Of Home Builder Confident Since 2006

The National Association of Home Builders (NAHB) released its October survey of builder sentiment stating it rose another point to 41 this month. The seasonally adjusted index is designed so any number over 50 indicates that more builders view sales conditions as good than poor. While it is still below the tipping point of 50, it is the highest level since June 2006. What is noteworthy is that it has steadily climbed over the past year from a reading of 17, a welcome evidence of a slow but steady housing recovery that is giving the U.S. economy a boost.

Overall, the number of homes that were started increased 15 percent in the month measured from August through September, to a seasonally adjusted annual rate of 872,000. That's the fastest rate since July 2008. The numbers place the rate of new construction at a surged pacing more than 38 percent in the past 12 months. Where we usually see a slow down come Fall, builder confidence continued to improve in three out of the four U.S. regions in October. Looking at three-month moving averages, the HMI gained two points in the Midwest and West to 42 and 44, respectively, and three points in the South, to 39. A three-month moving average for the Northeast's HMI held unchanged at 29.

Home Buyers Want A Great Location To Build

Butch Sprenger, owner of Destiny Homes says, "increasing numbers of residents are house hunting and if they are going to build, they are taking the time to be decisive about what they want. With fewer lots on the market to select from, buyers are 'treasure hunting' to find the right lot; they are looking for a location with a great proximity to work, the wealth of Minneapolis entertainment, the arts, and shopping opportunities".

Forecast 30% Annual Growth In New Home Sales

In a report released Tuesday, Goldman Sachs analyst Joshua Pollard echoed encouraging builder confidence numbers, predicting that a combination of factors—including new government mortgage policies and a tight inventory of previously-owned homes for sale—could drive as much as a 30 percent annual growth in new home sales over the next few years. Destiny Homes says, "increasing numbers of clients are house hunting and if they are going to build, they are choosy. A lot of time is spent finding the right lot with a great proximity to work, the wealth of Minneapolis entertainment, arts shopping opportunities".

"The slight gain in builder confidence this month is an indication that, while still moving forward, the speed at which the housing recovery is proceeding is being moderated by the various constraints such as tight credit, difficult appraisals and more recently, the limited inventory of buildable lots in certain markets. These are the complicating factors that make it difficult for builder confidence to reach and surpass the 50-point mark, at which an equal number of builders view sales conditions as good versus poor," said NAHB Chief Economist David Crowe.

"Many builders are reporting increases in the number of serious buyers visiting their sales offices, and the overall confidence measure is much higher than it was at this time last year," said NAHB Chairman Barry Rutenberg, a home builder from Gainesville, Fla. "The concern is that, even though demand for new homes is rising, overly tight credit conditions are still constraining new building and new purchases at a time when that kind of economic activity and the job growth it generates are greatly needed."

Destiny Homes says, "fewer developed available lots are on the market,and as a custom home builder, it takes more effort to locate a lot in a great location that is ready for a new construction. Buyers need to have their financing in order to have a chance today". David Crowe, chief economist at NAHB sums up why, "The dynamic has changed. Large public builders have access to capital through their own balance sheets, rather than having to borrow. That gives them an advantage in acquiring the few developed lots." Being empowered by their own funds, large public builders are able to skip the bottleneck of tight lending that delays or denies so many perspective buyers.

Builders Have To Start Building More Homes

"That has bearing on the ability of home building to ramp up the production of homes going forward," Chen says. "We're seeing firming in demand, [and] inventory of new homes available for sale is at a record low. As demand picks up, builders are really going to have to start putting up homes." Regardless, builders started construction on single-family houses and apartments in September at the fastest rate in more than four years, the Commerce Department said October 17, 2012. Additionally, home builders laid plans to build homes at an even greater pace in the months just ahead, a signal of their confidence that the housing rebound is here to stay. Applications for building permits, a sure signal of future construction, jumped nearly 12 percent to an annual rate of 894,000, achieving another high point since July 2008.

Builder Exchange-Traded Funds - Additional Sign of Housing's Strength

Another sign of home builder strength is that one exchange-traded fund of home builders has more than doubled over the last 12 months and is extremely encouraging. Homebuilder stocks and exchange traded funds grabbed the headlines again due to several key data points on the housing market that will let investors gauge the strength of the ongoing recovery. Builder ETFs are hovering around multiyear highs and have been one of the best-performing sectors in 2012. SPDR S&P Homebuilders tops other industries with a year-to-date gain of about 46%. Improving housing data has helped push ETFs such as XHB and the iShares Dow Jones US Home Construction Index Fund (ITB) up to new highs. ITB has gained 66% in 2012, as reported by Yahoo Finance. The robust construction data surprised many economists and was reported to have helped push stocks, modestly higher, while the prices of homebuilder stocks rose sharply. Additionally U.S. citizens applying for mortgages to buy a home have increased, pushing up sales and home prices after a six-year sluggish market. The steady increases suggests housing is stepping out ahead of other industries, like manufacturing, to take a lead role in turning around our economy. The Freddie Mac Primary Mortgage Survey just released October 11, shows just how reasonable mortgage rates are.

Putting Construction Workers Back On The Job Building Homes

Employment for construction workers is down 70 percent since 2006 when the housing industry was at its most robust point. Jobs are returning to the sector, it's slow going as some buyers are waiting to see the results of the upcoming election. Construction employment gains are only about 1 percent off the bottom. If middle class buyers could gain quality mortgage more readily, NAHB believes history shows that would put more workers back on the job renovating and building homes. More new homes equals accelerated growth and helps to boost the construction workers hiring pace, as we see low home inventory in Minneapolis area residential communities.

Destiny Homes has been working in Minneapolis and the surrounding areas for over 35 years. We do so much more than new construction, renovation, remodels and design: we build friendships with our customers. If you are seeking an established reputable home builder in the Twin Cities area, give us a call at 952-934-5706. We welcome an opportunity to get to know you over a cup of coffee.

Download the N0AHB and Wells Fargo October Home Builders Confidence Report

Download the Freddie Mac Primary Mortgage Market Survey Report