Los Angeles Home Builder Confidence

Pressures that have been mounting on the backs of home builders throughout the nation have finally taken effect. As the 2015 real estate market is shaping up, builders have lost a little bit of confidence in the market but still remain in positive sentiments according to the National Association of Home Builders/Wells Fargo Housing Market Index.

In May the index, which gauges builders’ expectations for the market based on current home sales and market predictions over the next six months, fell two points to a level of 54. Any reading over 50 indicates a positive outlook, so even with faltering expectations it seems most builders are looking forward to advantageous market conditions for the foreseeable future.

“Despite this month’s slight dip, builder confidence in the new home market remains above the 50-point benchmark,” said NAHB Chairman Tom Woods, a home builder from Blue Springs, Mo. “Overall, the second quarter of 2015 is shaping up to be very solid.”

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The index is really a story of two of the most important entities that the market is relying on for continued success: home builders and home buyers. While builders have been struggling to keep up with the rising cost of land and materials, buyers have been navigating a tricky market, especially in Southern California where home values have risen while inventory numbers have been down.

“Consumers are exhibiting caution, and want to be on more stable financial footing before purchasing a home,” said NAHB Chief Economist David Crowe. “On the bright side, the HMI component measuring future sales expectations has been tracking upward all year, mortgage rates remain low, and house prices are affordable. These factors should spur the release of pent-up demand moving forward.”

New Home Construction Remains Strong

Despite the perceived setback, home builders have been very active through the month of April. According to the Commerce department, housing starts increased an incredible 20.2 percent from March to April, coming to an annualized level of over 1.1 million.

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This is the highest level of housing starts seen since November 2007 and a very welcome surge as inventory has been severely lacking in many markets throughout the country. It also seems that April’s increase won’t be a deviation but rather the norm as building permits increased 10.1 percent to their highest level since June 2008.

Regionally, the West had one of the strongest increases in new home starts with a 39 percent increase but was no match for the 85.9 percent surge in the Northeast. The Northeast’s stellar performance was bolstered by a strong increase in multi-unit projects while it seems builders in the West are focused on bringing more single-family homes to the market in 2015.

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