Home Builder Confidence Gains in October 2010

Surprise, surprise, home builder confidence is on the rise. The National Association of Home Builders (NAHB) reported today that its October measurement of the Housing Market Index (HMI) showed improvement.

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Home Builder Confidence Gains in October

Before you get too excited and begin construction on your lot, it's important to note that the October increase came off record low sentiment levels. In fact, the three point gain in the Housing Market Index, to 16, marked the first such rise in five months, and takes it to a point last seen in June.

June is when the First-Time Homebuyers Tax Credit expired (though the settlement deadline was extended to September). The credit acted as a stimulus for real estate activity, and could have borrowed some from the months that immediately followed its expiration. Thus we could simply be seeing a normalization to a still stale state of activity.

That said, the direction of change is welcomed, though housing investors didn't think much of it. Toll Brothers (NYSE: TOL), Hovnanian (NYSE: HOV) and D.R. Horton (NYSE: DHI) shares were unchanged on the day. Still, NAHB Chairman Bob Jones, a home builder from Bloomfield Hills, Michigan said:

"Builders are starting to see some flickers of interest among potential buyers, and are hopeful that this interest will translate to more sales in the coming months. However, because most builders still have no access to credit for building homes, there is a real concern that we will not be able to meet the pent-up demand when consumers are ready to get back in the market. This problem threatens to severely slow the housing and economic recovery."

Take note, because what you have just received from Mr. Jones was some industry insight that might help your investment strategy. If small builders are unable to access credit markets when housing eventually recovers, then the public companies that operate in the field will have market share opportunities open up to them. They will be able to leverage leverage, or the lack of it, and gain ground over their smaller competitors. It's an advantage they already had, but apparently it will play more prominently as growth renews in this cycle (someday).

The NAHB Chairman repeated words The Greek published this morning regarding the difficulty consumers are also having gaining access to credit, which runs counter to the Fed Chairman's statement on improving conditions. Mr. Jones said this was the most critical obstacle for real estate now, which is saying something given all the formidable obstacles that stand before housing: foreclosure flow & scandal; unemployment; and economic uncertainty.

Still, record low mortgage rates may finally be at a point capable of luring some into an open house. According to this biased organization (the NAHB), foot traffic improved this month. Specifically, the HMI's component indexes all gained in October. The index gauging current sales conditions rose three points to 16, while the index gauging sales expectations in the next six months rose five points to 23, and the index gauging traffic of prospective buyers rose two points to 11. Builder confidence also improved across each measured region in October. The South and West posted four-point gains a piece, to 18 and 12, respectively, while the Northeast and Midwest each took back a single-point, to 17 and 13, respectively.

It's not much to write home about, or to the blogosphere, but given last week's refinancing spike, this adds to evidence that record low mortgage rates might finally be pulling people in. Beneficiaries should eventually include the banks that are doing this business, along with home builders eventually, but not today.



Editor's Note: Article should interest investors in Bank of America (NYSE: BAC), Freddie Mac (OTC: FMCC.OB), Fannie Mae (OTC: FNMA.OB), Goldman Sachs (NYSE: GS), Morgan Stanley (NYSE: MS), Wells Fargo (NYSE: WFC), Toronto Dominion (NYSE: TD), UltraShort Real Estate ProShares (NYSE: SRS), Ultra Real Estate ProShares (NYSE: URE), ING Clarion Global Real Estate Income Fund (NYSE: IGR), Xinyuan Real Estate Co. (NYSE: XIN), Rydex Real Estate Fund H (Nasdaq: RYHRX), T. Rowe Price Real Estate Fund (Nasdaq: TRREX), Toll Brothers (NYSE: TOL), Hovnanian (NYSE: HOV), D.R. Horton (NYSE: DHI), Beazer Homes (NYSE: BZH), Lennar (NYSE: LEN), K.B. Homes (NYSE: KBH), Pulte Homes (NYSE: PHM), NVR Inc. (NYSE: NVR), Gafisa SA (NYSE: GFA), MDC Holdings (NYSE: MDC), Ryland Group (NYSE: RYL), Meritage Homes (NYSE: MTH), Brookfield Homes (NYSE: BHS), Standard Pacific (NYSE: SPF), M/I Homes (NYSE: MHO), Orleans Homebuilders (AMEX: OHB), Vanguard REIT Index ETF (NYSE: VNQ), PNC Bank (NYSE: PNC), J.P. Morgan Chase (NYSE: JPM), Hooker Furniture (Nasdaq: HOFT), Ethan Allen (NYSE: ETH), Pier 1 Imports (NYSE: PIR), Williams Sonoma (NYSE: WSM), Home Depot (NYSE: HD), Lowes (NYSE: LOW), AMEX: VAZ, AMEX: NKR, AMEX: MZA, AMEX: NXE, AMEX: NFZ, Nasdaq: XNFZX, Nasdaq: FSAZX, Avatar Holdings (Nasdaq: AVTR), Apartment Investment & Management (NYSE: AIV), Equity Residential (NYSE: EQR), Avalonbay Communities (NYSE: AVB), UDR Inc. (NYSE: UDR), Essex Property Trust (NYSE: ESS), Camden Property Trust (NYSE: CPT), Senior Housing Properties (NYSE: SNH), BRE Properties (NYSE: BRE), Home Properties (NYSE: HME), Mid-America Apartment (NYSE: MAA), Equity Lifestyle Properties (NYSE: ELS), American Campus Communities (NYSE: ACC), Colonial Properties (NYSE: CLP), American Capital Agency (Nasdaq: AGNC), Sun Communities (NYSE: SUI), Associated Estates (NYSE: AEC), PennyMac Mortgage (NYSE: PMT), Two Harbors (AMEX: TWO), Tasty Baking (Nasdaq: TSTY), Pep Boys (NYSE: PBY), SEI Investments (Nasdaq: SEIC), GSI Commerce (Nasdaq: GSIC), Comcast (Nasdaq: CMCSA), DuPont (NYSE: DD), Tyco Electronics (NYSE: TEL), Lincoln National (NYSE: LNC), Campbell Soup (NYSE: CPB), Cigna (NYSE: CI), AmeriSource Bergen (NYSE: ABC), Sovereign Bancorp (NYSE: SOV), FMC Corp. (NYSE: FMC), Ametek (NYSE: AME), Sunoco (NYSE: SUN), Urban Outfitters (Nasdaq: URBN).

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