Home Builder Confidence Rises Despite Weak Housing Market

Despite an incredibly sluggish housing market, confidence among home builders appears to be on the upswing.

Builder confidence for newly built, single-family homes rose four points in October from a score of 14 to 18 on the National Association of Home Builders/Wells Fargo Market Housing Market Index. A score of 18, while an improvement from previous months, still shows that the housing market has a long road to recovery. A score over 50 means more builders view conditions as good rather than poor.

The NAHB notes that the four point gain is the largest one month gain the index has seen since the now-expired home buyer tax credit helped provide a temporary jolt to the market.

Builder confidence regained some ground in October due to modest improvements in buyer interest in select markets where economic recovery is starting to take hold and where foreclosure activity has remained comparatively subdued, said NAHB Chairman Bob Nielsen, in a statement.

That said, confidence remains quite low as builders continue to confront overly restrictive lending policies that are discouraging prospective buyers, problems with new-home appraisals and widespread uncertainty regarding federal support for homeownership.

The index is calculated by asking home builders to rate perceptions of current home sales and six-month projections as either good, fair or poor. Furthermore, the survey asks builders to rate the amount of prospective buyers as high to very high, average or low to very low. The scores are then compiled to make a numerical score.

The confidence of builders doesn't necessarily match that of home buyers. Fannie Mae, in its September housing survey, pointed out that consumers held their weakest outlook on the housing market since June 2010.

Mortgage rates are near an all-time low, as the 30-year fixed mortgage rate dipped below four percent two weeks ago before rising slightly this past week, thus making it an ideal time to refinance or buy a first home. However, many people are underwater on their mortgages, meaning the equity of their home is less than what is owed on the mortgage. Furthermore, banks have tightened lending standards for first-time home buyers, requesting higher credit scores and, often, a 20 percent down payment.

Write to Samuel Weigley at s.weigley@ibtimes.com.