Housing confidence up among builders, but is it a fluke?

Published: Monday, June 17 2013 7:20 p.m. MDT

Rick Martinez of B&C Construction hammers nails into a wall as workers frame up a home in the Bellevue subdivision of Ivory Homes Monday, June 17, 2013, in Draper.

Scott G Winterton, Deseret News

SALT LAKE CITY — Utah home builders are "cautiously optimistic" about a national report showing builder confidence at a seven-year high.

The Housing Market Index, released Monday by the National Association of Home Builders and Wells Fargo, reached a high of 52, the first time since 2006 that numbers have been above the index midpoint of 50. It is also an eight-point jump from May, the biggest one-month jump since August-September 2002.

"Housing leads us into a recession and housing leads us out of a recession," David Crowe, chief economist and senior vice president of the National Association of Home Builders, said.

The index measures three areas: current sales conditions, builders' expectations for future sales and traffic from potential buyers, all of which saw gains.

The improved numbers suggest builders are beginning to trust that the improving housing market is here to stay, Crowe said.

Confidence levels above 50 on the index are encouraging, Mark Vitner, managing director and senior economist at Wells Fargo, said, but he cautioned that this month's numbers might not be a true reflection of builder optimism. This is mainly because the number of respondents for the June confidence report was 255, he said, the lowest since 2004. An average month sees around 400 builders respond to the survey.

Once confidence levels are higher than 50 for at least three months, "that would be a sure sign that the housing recession and the broader economic recovery have ratcheted up a notch," Vitner said.

High confidence levels bode well not only for the housing market but for the economy as a whole. The National Association of Homebuilders estimates that three jobs are created for every home built.

Economic indicators

The index is only one marker of the uptick in the housing market, Crowe said.

"We're seeing more employment increasing, consumer confidence increasing and a lot of pent-up demand," he said, speaking of those who have put off buying a home while the economy was down and are now in a position to buy.

The market is also looking up for specialty homes, according to Steven Dailey, owner of Steven Dailey Construction. His customers differ from the general market in that most are in a position to pay cash for their homes.

The custom home market didn't crash quite as hard as the rest of the home building market, he said, but it was still impacted.

"The lows don't go quite as low and the highs don't go quite as high," he said.

Their biggest hurdles are getting appraisals to match what it costs to build a home and the expectation that some homebuyers have of buying homes at the lower costs they saw during the recession.

The confidence index is proof that things are looking up for housing, according to Chris Gamvroulas, president of Ivory Development, a subsidiary of Ivory Homes.

For instance, Ivory Development saw 79 sales in May 2012. One year later, sales had climbed to 110 in May. And in addition to a growing demand, interest rates are rising to between 3 percent and 4 percent, rates he calls "shockingly low" and which motivate homebuyers to make a move now before they go higher.

"We've predicted that we would see an increase in sales when interest rates started to creep up because it causes buyers to have a sense of urgency," he said.

Home building is the "greatest manufacturing industry in America," Gamvroulas said, because the product is built in the United States and stays here.

He said he is optimistic because of the growth the housing market has seen over the past year but acknowledges that builders still face "a lot of headwinds."

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