Tight Credit Limits Home Construction

By:: Peter King | March 15, 2011

Homebuilders are looking ahead to the spring buying season with slightly more optimism than before, but their overall outlook remains glum.

Builder confidence in the market for construction of single-family homes rose a single point this month, rising to 17 on the National Association of Home Builders/Wells Fargo Housing Market Index. That’s still a dismal score on the 100-point scale, but it’s the highest the Index has been since May 2010, when the market was still getting a boost from the homebuyer tax credit.

A score of 50 means builders surveyed are equally divided over whether conditions or good or poor.

"Builders are cautiously looking forward to the spring home-buying season in hopes that improving economic conditions will help bring more buyers to the table," said NAHB Chair Bob Nielsen. "However, the same factors that have been weighing down the market are still very much in play.”

Among those factors, he said, are competition from sales of distressed properties, the challenges potential new home buyers face in selling their current homes, appraisal values dragged down by distressed properties and tight lending conditions for both buyers and builders.

Builders were somewhat more optimistic looking beyond the spring buying season, expressing a somewhat more favorable outlook for new construction sales over the next six months. The index for market conditions over that period rose two points to 27, its highest level since last May.

An improving economy ought to generate modest housing gains this year, according to David Crowe, NAHB. However, he said that most small builders continue to have difficulty obtaining financing to support new construction, which has been a major obstacle to putting their crews back to work.

The outlook for current conditions was most optimistic in the Northeast and South, with each region scoring a 20 on the index. The West scored a 17, while the builders in the Midwest continued to have the most pessimistic views, with an index score of 12.

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