Don’t expect much — or any positive — movement. Despite record low rates and the lowest historical affordability rates on record, the fundamental issues plaguing new home sales persist.
The National Association of Home Builders (NAHB)/Wells Fargo will release its Housing Market Index (HMI) on Tuesday, May 15. The index measures builders’ outlooks for the economy and the housing market over the next six months. Although several metrics, including the HMI, have shown general growth over the past year, first quarter growth has been considerably minimal. Moreover, the HMI actually decreased to 25 in April for the first time in several months, falling to 2007 levels. This decrease is especially noticeable considering that it is now the spring buying period.
The HMI may be positively impacted by signs of increasing consumer sentiment. The Thomas Reuters/University of Michigan Index rose to a score of 77.8 this month, marking the highest level since the 2008 financial crisis. However, it is not clear that consumer sentiment has been or will translate directly into new home purchases. Barry Rutenberg, NAHB Chairman, said that NAHB members acknowledged increased interest in the home buying market but reported sustained hesitancy among potential homebuyers.
Although the economy may be experiencing mild gains, record low rates and historically strong affordability rates, the fundamental issues plaguing new home sales still persist. They are: new homes tend to be in less conveniently located locations when compared to existing home inventory, existing home inventory persistently remains at just under 4 million units, the shadow inventory that’s poised to add another 3.5M within the next 12-18 months, and lastly – the availability of purchase money mortgages is too tight and is limiting the number of eligible buyers.