Home Construction Industry Confidence Declines This October

Confidence of the home construction industry has declined by one point this October to 18. This is according to the most recent Housing Market Index report from Wells Fargo and the National Association of Home Builders.

One of the reasons for the decline is the nearing expiration date of the tax credit program. For the NAHB, the upward trend being enjoyed since the beginning of the year is slowly stalling. And to make things worse for home builders, they are still facing the challenge of obtaining financing as well as reasonable appraisals.

Chief Economist of NAHB, David Crowe, also pointed out that it is the first time that the HMI, all its three index components, declined since November 2008. It is therefore obvious that the home construction industry is reliant on the tax credit incentive to boost new home sales.

In fact, considering that the expiration is almost a month away, builders are finding it nearly impossible to complete a sale wherein the buyer can still take advantage of the incentive. If Congress does not decide to extend the program, not only will the housing industry suffer from a decline in home sales, but there will also be an increase in unemployment rate.

On the other hand, an extension of the program would definitely have an affirmative impact on the housing industry, in terms of new home sales. This would surely stimulate the housing demand and significantly improve economic conditions.

The said HMI survey is conducted monthly and gauges home builder’s awareness of sales expectations and actual sales of new single-family units for a six-month period. Builders rate their perceptions as poor, fair or good.

In addition, the said survey asks the home building industry to rate the traffic of potential buyers as low, average, high or very high. The scores obtained for every component will be used to compute the index, which is seasonally-adjusted. A score of 50 will reveal that home builders consider current sales conditions to be good.

For October, the component that gauges present sales condition dropped by one point to 17 while the sales expectation declined by two points. The last component, buyer traffic, slipped to 14, a difference of three points from last month.

As for the home construction industry confidence per region — the Northeast showed an HMI improvement of one point; the South and Midwest regions revealed a one-point drop as well; and the West region recorded a drop of four points.

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