Builder Confidence Weak Once Again

 

Nearly a quarter of all mortgage borrowers remain underwater on their home loans. In the first quarter, the share of prime loans that were delinquent or in foreclosure rose sharply. That's bad for housing inventory, bad for home prices, and bad for the residential investment outlook. Article: For a brief moment last fall, it looked as though the American housing sector might not be the persistent economic drag economists had feared. Home prices and sales leveled off and began climbing.

Construction did the same. In the third and fourth quarter of last year, residential investment was a minor but positive contributor to American output growth. Buoyed by a generous homebuyer tax credit and mortgage rates held down by Federal Reserve purchases, housing markets seem poised for stability, if not a new boom in activity.

But the good times haven't lasted. Construction and builder confidence have weakened once again. The latest data on existing home sales show a spike in activity and the best April performance since 2006. But this was almost certainly due to the looming end of the federal tax credit.

Sales also rose and spiked before and immediately after the previous deadline, last fall, only to decline again through the winter. More worrying still, the previous spike in sales coincided with a decline in housing inventory. This time, inventories have risen dramatically. Even as the end of government incentive programs lead buyers to exit the market, the number of homes for sale will have grown significantly.

It's not surprising that prices have also been falling again. According to the Federal Housing Finance Agency, home prices declined 1.9% from the fourth quarter of 2009 to the first quarter of 2010. Prices were up 0.3% in March, according to the FHFA data, but the general trend is not encouraging.

– Courtesy of The Economist