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The Housing Market Index for May was released this week, posting a 3-point increase in builder confidence over April. Furthermore, the component of the Housing Market Index, which gauges builder’s expectations for future sales, was 53, the highest number since February 2007. The Housing Market Index ranks builder outlook using a three-part system. Builders are asked to describe their current buyer traffic as well as their current sales and expectations for the next six months.

May’s report also showed a 4-point increase in the current sales department for a score of 48. Driving builder outlook is the surge of buyer demand. Diminishing inventories of resale homes across the country continues to be a problem for many future homeowners.   Buyers often find themselves competing in bidding wars to secure the home of their dreams while interest rates remain at record lows.  In light of such fierce competition and low interest rates, home buyers are increasingly turning to new construction. As evidenced in the May Housing Market Index, builders are indeed seeing more and more consumers come through their doors driving the builder traffic score, which increased 3 points to 33.

National Association of Home Builders Chairman Rick Judson, a North Carolina builder, stated: “Builders are noting an increased sense of urgency among potential buyers as a result of thinning inventories of homes for sale, continuing affordable mortgage rates, and strengthening local economies. This is definitely an encouraging sign.” Judson echoed previous Housing Market Index reports, repeating that the main challenges for builders are availability of lots for building, labor shortages, and high costs of building materials. NAHB Chief Economist David Crowe acknowledged those concerns, remarking that it will take time to reestablish chains of supply on those areas and despite those factors builders and consumers alike remain confident.

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The NAHB/First American Improving Markets Index for May reported 258 improving metros which included a metro from each state in the nation. Four new markets were added this month, and 19 dropped from the list. Builders, real estate pros and economists alike remain positive regarding the U.S. housing market, and continue to cite limited availability of credit, lack of supply and limited lots for building as ongoing obstacles. Rick Judson, NAHB Chairman and a homebuilder based in North Carolina, pointed out that more than 70 percent of metropolitan areas surveyed have maintained a presence on the Improving Markets Index, and that’s a good sign.

Indeed, for a metropolitan area to be included in the  Improving Markets Index it must experience growth in three areas—single family housing permits, jobs and price appreciation of local homes—for at least 6 consecutive months.  While 19 metros were removed from the list this month, this change might be a result of seasonal factors. Some markets experience a seasonal downturn in home buying and construction during winter months, so this is not unusual.

In other positive news, for the third consecutive month every state in the nation has at least one metro included in the Improving Markets Index, and this is the eighth month in a row where new markets joined the list.  Kurt Pfotenhauer, vice chairman of First American Title Insurance, reminds consumers to focus on “the big picture,” which is that most markets are experiencing rising home values. There are more jobs available and permits for new home construction are on the uptick.  While the Improving Markets Index shows a slight drop in the total number of metros, the National Association of Realtors® reported a month-to-month increase of 1.5 percent in pending contracts, an indication that buyer demand is emerging.

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The National Association of Realtors (NAR) released its Pending Home Sales Index report for February 2013 on Thursday the 27^th, and the future looks bright. Although this most recent Pending Home Sales Index reflected a slip in the number of residential contracts, the number is still higher than it has been in almost three years. The numbers are also up 8.4% over February 2012’s Pending Home Sales Index figures. The Pending Home Sales Index reports sales contracts and not home sales and is used by industry professionals as an indicator of future housing trends.

A familiar obstacle, low inventory remains the chief concern for home builders, prospective buyers and Realtors alike, with some agents complaining there just aren’t enough homes in their respective markets to show customers. NAR Chief Economist Lawrence Yun states that “housing starts need to rise at least 50% from current levels” to relieve the current inventory shortage. Yun also indicated that clearer regulatory rules allowing small banks and credit unions to do more construction loans would help shift housing starts in the right direction. The good news is consumer demand for homes remains high, a trend that has been steady over the past two years.

Another positive indicator mentioned in the Pending Home Sales Index was the NAR projection  of  7 percent growth  in existing home sales  in 2013 to 5 million. The median home price for existing homes is also expected to surge 7 percent this year. The bottom line? Despite a minor decline in pending contracts due to low inventory, buyer interest and home values will continue to climb in 2013.

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The National Association of Home Builders (NAHB) released its monthly Housing Markets Index on April 15. The Housing Markets Index dipped two points to 42 this month, but the numbers don’t tell the entire story. The fact remains that more buyers are looking to build their dream homes and demand for new construction remains strong.

Complementing the high demand for new housing are historically low interest rates that continue to hover near 3 percent. Buyers want to buy and now have the means to do so. Today’s builders  face challenges  of supply, financing, and personnel. Supplies of materials and land are the primary concern. NAHBChairman Rick Judson stated , “Many builders are expressing frustration over being unable to respond to the rising demand for new homes due to difficulties in obtaining construction credit, overly restrictive mortgage lending rules and construction costs that are increasing at a faster pace than appraised values.”

The Housing Markets Index gauge derives its score from a three-pronged approach. Builders are asked to rate traffic from buyers, their current sales, and sales in the coming six months. These components are averaged and a total greater than 50 indicates most builders feel the market conditions are good.  While the overall score in this month’s Housing Markets Index is 42, builder expectations for sales in the next six months increased three points from last month, to 53. Overall traffic was down four points to 30 and current sales expectations dipped two points to 45.  NAHB Chief Economist David Crowe expressed confidence, stating that with time the chain of supply as well as the work force will be able to reestablish itself and catch up to the demand.

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As buyer demand continues to ramp up, more consumers are deciding to build new versus shopping the resale market, as evidenced by the March Housing Starts Summary. Housing starts are up 47 percent from last year and 7 percent versus prior month, according to the U.S. census bureau. Buyers are frustrated with the lack of inventory and looking into new construction and other options. Many metro areas continue to experience a high level of distressed homes for sale in their markets, including short sales. Short sales can take several months to close. Buyers, who can afford to, opt to build in order to customize every detail. NAR Chief Economist Lawrence Yun has said that the lack of available inventory is holding the market back. Yun also indicated only new home construction can relieve this demand and that a 50 percent increase in production appears to be needed.

The March Housing Starts Summary recorded that housing starts rose to an annual rate of 1.03 million units. Single family starts declined 4.8 percent to 619,000 from February’s rate of 650,000.

Building permits were down in March’s Housing Starts Summary, 3.9 percent from February with 902,000 permits filed. The news is still favorable for the market in that the number of permits pulled was up 17.3 percent from March of 2012. Home Completions were another bright spot in the March Housing Starts Summary, up 11 percent over February and 36.3 percent over last year with 800,000 units completed. The March Housing Starts Summary reveals the largest increase in new home construction in almost 5 years. Smaller builders continue to struggle with rising material costs and limited financing availability for their projects. Noted estate experts agree that new home starts will maintain a growth trend throughout 2013.

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