The National Association of Home Builders released a statement yesterday that builder confidence is down.
“Home builders remained considerably downbeat as market conditions
continued to erode in May, according to the NAHB/Wells Fargo Housing Market
Index (HMI), released today. The HMI fell a single point to 19, bringing it
within one point of the record low 18 set in December 2007 (the series began in
January of 1985). ”
“With the HMI hovering in the historically low two-point range that’s
prevailed over the past nine months, the message is very clear: The
single-family housing market is still deteriorating and Congress and the
Administration must move immediately to enact legislation that will help reverse
the trend,” said NAHB President Sandy Dunn, a home builder from Point Pleasant,
W.Va. “A temporary home-buyer tax credit is just the incentive that many
prospective home buyers need to go forward with a purchase and help kick-start a
housing and economic recovery.”
The statement went on to say:
“Despite the Federal Reserve’s concerted efforts to lower short-term interest
rates, free up credit markets and shore up the national economy, the housing
market has shown no evidence of improvement thus far. In fact, conditions have
continued to deteriorate in recent times,” said NAHB Chief Economist David
Seiders. “The latest HMI shows that even fewer builders now foresee market
conditions improving over the next six months compared with our April survey,
and builder ratings of buyer traffic through model homes also have dropped off
over the past month on a seasonally adjusted basis. This certainly adds fuel to
the argument that targeted policy stimulus, in the form of a temporary tax
credit for home buyers, is essential to halt the housing downswing and remove
the heavy drag being exerted by housing on overall economic growth.”
I don’t know…call me crazy, but I really don’t see how a $7,500 tax credit is going to do a whole lot. Many buyers are worried about the value of a home going down by double digits. My buyers are concerned by overpaying by 10% which would be a $20,000-$50,000 loss of value in their eyes.
Do I think that $7,500 will bring buyers looking…yes…will it get buyer’s buying…I don’t think so. The fact is that people still have to be able to afford the mortgage payment. With homes floating to such high prices, they needed to correct and in some areas still correct in order to make the payments affordable. A tax credit doesn’t make the house affordable, just more enticing.
The bottom line is pretty simple to me…can a buyer afford the monthly payment for a home or not? Our home price to income ratio (historically around 3.0-3.5) is still too high here in Salem Oregon. This means that if people want to own a home, they have to be “house poor.” I am seeing more and more people, not agreeing to do that. As long as home prices are not in line with current incomes, they won’t be affordable, and people won’t buy houses. It’s that simple.
So…I would expect builder confidence to continue to decline. Homes are just too expensive for the average person.