Homebuilders' confidence rose for the fourth consecutive month
in August despite rising interest rates, recording the strongest
increase in almost eight years.
The National Association of Home Builders/Wells Fargo Housing
Market Index (HMI), known as the homebuilder sentiment index,
jumped three points to 59 in August from 56 in July.
The index reflects improved sales expectations backed by an
increase in both the demand for and prices of new homes. Any
reading on this index above 50 indicates that an increasing
number of builders view the market conditions as good than poor.
Of the three index components, current sales increased three
points while future sales expectations went up one point.
However, buyer traffic remained unchanged.
Stocks of homebuilders like
D.R. Horton, Inc.
The Ryland Group, Inc.
) rose on the encouraging data.
The jump in the index shows that the recent interest/mortgage
rate hikes have not dampened the housing recovery much. According
to the Freddie Mac mortgage survey, the 30-year fixed mortgage
rate has risen from 3.59% on May 23 to 4.40% on Aug 15. High
interest rates decrease demand for new homes as mortgage loans
become expensive, thus lowering a buyer's purchasing power.
Though interest rates have started increasing, they are still
below historical levels and housing is still very much
affordable. Thus, high affordability levels, increased rentals
and historically-low interest rates are driving the housing
momentum. In addition, accelerating job growth and increasing
consumer confidence are boosting demand for new homes.
Supply however remains limited by low home inventories, both
for new and existing homes. A shortage of land and labor is
restricting the production of homes, both single and
multi-family. Home prices have thus started moving up with market
demand gaining momentum and supply remaining limited. In fact,
the rising home prices and thinning home inventories have created
a sense of urgency among homebuyers who are now more anxious to
buy a house before prices shoot up further.
However, the housing momentum seen in 2012 and in the first
half of 2013 seems to have slowed down somewhat with the recent
spike in mortgage rates, tight credit availability and limited
supply of land and labor.
D R HORTON INC (DHI): Free Stock Analysis
KB HOME (KBH): Free Stock Analysis Report
LENNAR CORP -A (LEN): Free Stock Analysis
PULTE GROUP ONC (PHM): Free Stock Analysis
RYLAND GRP INC (RYL): Free Stock Analysis
TOLL BROTHERS (TOL): Free Stock Analysis
To read this article on Zacks.com click here.