I know what you’re saying- builder confidence rates, builder schmonfidence rates, right? Who cares? You should. Hear me out… although it doesn’t directly impact you what Joe Builder thinks about the market, it is an economic indicator worth looking at.
Builder confidence is measured by surveying builders about their confidence in sales for the next six months as well as their confidence in foot traffic. According to the National Association of Home Builders (NAHB), builder confidence remains low but stable and not declining.
The confidence is an indicator that is newsworthy and we encourage you to follow here at AG because these are the people on the front line. They’re the ones having to battle banks with an axe to get any funding and they’re the ones who see mass buyers shopping whether they have agents or not.
The foot soldiers of the industry have had to live a lean, lean life, and their ability to have any optimism in the market should be closely noted.
If a struggling small builder believes a turnaround is coming based on the indicators at their fingertips that they live out daily, it should be closely noted.
This is one of the sectors that has been hardest hit by the recession. When a big builder that has gone through mass layoffs and budget cuts believes that foot traffic is going to decline but they’re still going to build, that’s a good sign.
Stability in confidence is a really good thing right now, even if that confidence is not skyrocketing. What say you?
Steven Ligon
January 18, 2011 at 11:37 pm
This is very important to watch-it could be an early indicator of a boost in new housing starts, which anyone in residential real estate should want to see! More new housing starts means more existing sales, and stronger markets.
Brad Balmer
January 18, 2011 at 11:58 pm
Spot on… good post.
I wonder how much the possibility of the loss of the mortage interest tax deductibility for Americans concerns which both NAHB (and NAR) are aggressively lobbying against, impacted the results of the poll?
BawldGuy
January 19, 2011 at 12:14 pm
Lani — my view is only through one builder’s eyes, but possibly helpful here.
He’s not near being one of the goliath types, yet he’s much bigger, and far more experienced than the little guys of which you speak. Been building since the early 70’s. Never missed a loan payment ever. Has had huge lines of credit based upon his firm’s stellar record.
Yet even though the market has and is taking to his product like pancakes at a Boy Scout breakfast, his primary construction lenders are now wanting to see executed contracts before handin’ over the cash to build. Since his record is better than the vast majority of most of the much smaller builders, and not to mention his financial statement, one has to wonder why most smallish builders would be optimistic. Considering the massive inventory glut, and what’s surely gonna hit this year’s market, how is a small builder gonna build 2-4 homes that will compete, while also providing him with a decent profit?
The builder mentioned above is anomalous to the nth degree. Am I making sense to anyone?
BawldGuy
January 19, 2011 at 12:33 pm
I forgot to include this fact: 2009 set the modern record for fewest housing completions — 2010 saw that record broken. Another reason I’m more than somewhat mystified by small builders claiming optimism. I think they’re whistling past the cemetery. You?
Joshua Hill
January 19, 2011 at 12:56 pm
I am concerned about consumers gauging the strength of the market by builder confidence, largely because I am a REALTOR in Phoenix. Much of the Phoenix Metro Area is already over-built, not needing a surge of new construction, so I rarely hear complaints from my clients that they wish they had *more* new home inventory to choose from. I recognize the fact that the new home market has many beneficial effects on the economy as a whole, but in Phoenix’s case right now, it may not be the best indicator of a real estate market upswing.