Credit Clips Homebuilder Confidence
CNBC Real Estate Reporter
After a summer of significant monthly jumps in confidence among the nation's home builders, fall appears to be bringing in a chill.
Builder sentiment edged up just one point in October, according to an industry association index, but credit issues still plaguing the market appear to be holding sentiment from making the final move from negative to positive.
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"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, " explained National Association of Home Builders' chief economist David Crowe. "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."
Buyer traffic continues to improve, marking the only positive move in the NAHB's monthly index. Both current sales conditions and sales expectations over the next six months were unchanged, both still below the positive mark. Regionally, confidence improved in all but the Northeast region.
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Record low interest rates are bringing buyers back to the market, tempting them, but often turning them away at the same time. The rates are great, if you can get them, but a lot of potential buyers, especially much-needed first-time home buyers, cannot.
"You have to have substantial down payment. The minimum down payments are difficult, " says Jane Fairweather, a real estate agent in Bethesda, Maryland. "The people that can manage them run into appraisal problems, banks are still squirrely, so mortgage money is still an issue in the marketplace."
That is not likely to improve any time soon. Details on new regulations in the mortgage market are beginning to leak out of the Consumer Financial Protection Agency, and while they appear to be less onerous than once expected, they are not exactly benign.
"For us the biggest issue with QM (the Qualified Mortgage rule that will be issued by the CFPB as part of financial reform legislation) remains that banks have an incentive to be more conservative in their underwriting until they are confident on how the Qualified Mortgage safe harbor will protect them from borrowers trying to avoid foreclosures by claiming that they never should have gotten the loan in the first place, " writes Jaret Seiberg of Guggenheim Securities. "This is why we believe we remain at risk for a purchase mortgage credit crunch in 2013."
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While credit is an obstacle to the home builders, dramatically low supply of existing homes is a near-term boon.
"October is going rather well. What I see as an interesting story is that realtor listings of existing homes keeps dropping, " notes Stephen Paul, executive vice president of MidAtlantic Builders in Rockville, Maryland. "I think the reason for this is that we are past the big short sale and foreclosure problem, and the balance of people are remaining in their homes with upside down mortgages, making their regular payments. They are not moving, not defaulting, just standing pat. That has shrunk the existing home inventory and will help the new homes market."
CNBC Realty Check producer Stephanie Dhue contributed to this report.
Sector Watch: US Home Builders
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