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August 15th, 2013

Builder confidence ticks higher, but for how much longer?

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iStock_ConstructionWorkerAre rising mortgage rates and home prices good for the housing market? It all depends on who you ask.

While homeowners looking to refinance wish that mortgage rates would stay near record lows forever, rising interest rates and firming home prices have acted as the great motivator for many potential homebuyers, according to the National Association of Home Builders.

The National Association of Home Builders/Wells Fargo Housing Market Index (HMI) rose three points to 59 in August, marking the fourth straight monthly increase and bringing the index to its highest level in almost eight years.

“Builders are seeing more motivated buyers walk through their doors than they have in quite some time,” Rick Judson, NAHB chairman and a home builder from Charlotte, N.C., said in a statement. “What’s more, firming home prices and thinning inventories of homes for sale are contributing to an increased sense of urgency among those who are in the market.”

Affordability slipping away

Why are homebuyers so motivated? It’s simple, affordability is slipping away.

A separate index released by the Home Builders on Tuesday reported that affordability declined nationwide during the second quarter.

During the second quarter, 69.3 percent of new and existing homes for sale were affordable to families making the U.S. median income of $64,400. That’s down from 73.7 percent in the first quarter. The second quarter’s reading was the first time the index was below 70 percent since 2008.

“Housing affordability has been hovering near historic highs for the past several years, largely due to exceptionally favorable mortgage rates and low prices during the recession,” said Judson in a statement. “Now that markets across the country are recovering, home values are strengthening at the same time that the cost of building homes is rising due to tightened supplies of building materials, developable lots and labor.”

Redfin: Not seeing the same demand

Not everyone is seeing the same type of demand the Home Builders are seeing. Redfin, a real estate broker and technology company which tracks various real estate trends, reported that their number of customers touring homes and making offers has been on the decline.

Home tours declined by 3.5 percent in July from the previous month, reported Redfin. Offers on properties were down 11 percent in July from June.

Interestingly, Redfin is eagerly waiting to see the fall numbers. Redfin saw a noticeable spike in offers in September 2012.

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About the HSH Blog

HSH.com's daily blog focuses on the latest developments in the mortgage and housing markets. Our mission is to relate how changes in mortgage rates and housing policy, as well as the latest financial news, impacts consumers, homebuyers and industry insiders alike. Our 30-plus years of experience in the mortgage industry gives us an edge as we break down the latest changes in an ever-changing market.

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Tim Manni

Tim Manni is the Managing Editor of HSH.com and the author of their daily blog, which concentrates on the latest developments in the mortgage and housing markets.

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