Home Builders Expecting Increased Activity in 2010. Appraisal Issues a Concern

The National Association of Home Builders today reported that homebuilder sentiment was unchanged in November.  A reading above 50 indicates builders view sales conditions as favorable whereas a read below 50 implies builders believe sales conditions to be poor. 

The November Housing Market Index was unchanged from October's downwardly revised level of 17. The component gauging current sales conditions  and the component gauging traffic of prospective buyers also remained unchanged, at 17 and 13, respectively. The component gauging sales expectations for the next six months did however improve, moving up two points, to 28.

As you can see from the chart below, home builder sentiment has been improving off record low levels.

Regionally, home builder sentiment in the South was unchanged at 17,  the Midwest reported a three-point decline to 14, the Northeast posted a six-point drop to 19, and the West rebounded five points from the October read to 19.

The NAHB specifically pointed out that the November survey was conducted prior to the extension of the home buyer tax credit.

“When the HMI survey was conducted at the beginning of this month, home builders were facing the imminent expiration of the $8,000 first-time home buyer tax credit at the end of November, with no guarantee that this valuable buyer incentive would be extended,” said NAHB Chairman Joe Robson, a home builder from Tulsa, Okla. “Now that Congress has done its job by both extending the tax credit into next year and expanding eligibility for it among potential buyers, we are very hopeful that this will have the intended stimulative effect on sales activity going forward.”

Going hand in hand with some of Fed Chairman Bernanke's comments on credit yesterday (READ MORE), NAHB Chief Economist David Crowe discusses his concerns:

“Meanwhile, the challenges that builders are facing in obtaining credit for new housing production and appropriate appraisal values for their homes continued to worsen. These issues still present a very worrisome problem that is weighing down prospects for a sustained housing market recovery.”

In the press release, the NAHB reported that “one-third of respondents indicated that they have recently lost sales due to low appraisal values. This is up from a quarter of respondents who indicated as much in a survey taken in July. Builders report that low appraisal values are often tied to the use of foreclosed and distressed properties as “comps” in the appraisal process.”

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