Optimism is Bursting Out All Over...

After making a couple of posts on the lumber and housing markets last week, I was looking forward to moving on to lighter, and hopefully, more positive topics. But today's news just wouldn't let me drop housing without one more post.

If you watched the presentation I posted last week, you probably caught my comment about misleading signals from the media, and the example I gave of the positive spin put on auto sales back in November. Well, now we have a great example of that bubbly optimism in our housing industry.

For instance, isn't it great to know that "Builders Remain Optimistic About Housing Market"? When I read that headline, I wondered what builders they were talking to. The only silver lining I hear builders and others in the building industry talking about right now is that since others in the industry are still going out of business, business should be good for the survivors if housing ever turns around.

But that's what the headline said. Normally, then, an article would dig right into the great news. But this article begins...
Homebuilders' feelings about the current housing market haven't changed from February. But many are growing more optimistic that sales could pick up in the coming months.

The National Association of Home Builders/Wells Fargo said Monday that its builder sentiment index was unchanged this month at 28, the highest level since June 2007. The flat reading followed five straight increases.

Builders expressed more confidence in sales over the next six months. A separate gauge measuring that outlook rose for the sixth straight month, from 34 to 36.

Even with the brighter outlook, the industry has a long way to go. Any reading below 50 indicates negative sentiment about the housing market. The index hasn't reached 50 since April 2006, the peak of the housing boom.

So even though the index is at 36 and flat, and anything below 50 indicates a negative outlook, then Builders Are Remaining Optimistic? That's a creative headline.

Oh wait, we need to read the rest of the article to get the good news...
A key reason homebuilders are more optimistic is that they have seen more people express interest in buying a home. And rising interest has occurred alongside other improvements that suggest the troubled housing market could pick up after four weak years.

Sales of previously occupied homes rose in January to the highest level since May 2010. Mortgage rates have never been lower. And home construction has picked up.

Still, home prices continue to fall, and builders keep slashing their prices to stay competitive. Last year was the worst for new-home sales on records dating back to 1963.

Builders are struggling to compete with foreclosures, which have forced down prices of previously occupied homes. And many people are finding it hard to qualify for loans or meet higher required down payments.

Low appraisals are scuttling some deals after contracts have been signed. As a result, some people who want to buy a new house are holding off because they can't sell their home.

Those in a position to buy are benefiting from lower prices and mortgage rates. The average rate on the 30-year fixed mortgage is hovering near record lows below 4 percent.

Builders have pointed to some regional pockets of strength. New Orleans, Pittsburgh and other smaller areas of Texas, in particular, have reported increased buying.
So, builders are optimistic and are starting more homes because:

  • Home prices continue to fall
  • Last year was the worst on record
  • Foreclosed houses are the primary market for buyers
  • Buyers are finding credit harder to acquire
  • Low appraisals are scuttling home purchase contracts
Well, obviously, lots of reasons to be optimistic.

It must be so, because the same thing is echoed in similar headlines all over the news media today...

"The National Association of Home Builders/Wells Fargo housing market index stayed at 28, which marks the highest level since June 2007 after the one-point downward revision of February’s data to 28. Economists polled by MarketWatch had expected the gauge to read 29 in March."
"Builders cheered by warmup in housing sales"
"Charles Ruma is suddenly busy. His company, Virginia Homes, is getting five to 10 visits from prospective homebuyers each weekend. During the last three years, he was lucky to get five in a month.  
Through the housing crisis, the challenges of big regional and national homebuilders such as Beazer Homes USA Inc. and Toll Brothers Inc. were widely broadcast. But the devastation in the industry also was acute for many private homebuilders and other small businesses that are part of the housing industry. 
Ruma is one of many smaller homebuilders now seeing early signs that the housing industry is recovering. 
"It's very encouraging to see traffic coming out," Ruma says. Between the houses that the central Ohio builder signed contracts on in the second half of 2011 and the homes it expects to sell between now and July, he estimates that the company will have 21 closings this year. That would be Virginia Homes' best performance since 2009, when it sold 12 homes. The company sold just six in 2010 and seven last year."
Well, that settles it. Builders are optimistic, housing is near a 5-year high, and the economy is really warming up. Or something like that.

The reality is that home sales are still at bouncing along the bottom, and that new housing starts are basically running along at minimal replacement rates. A few pockets of the country are benefiting from locally stronger economies, and most of those pockets of prosperity are being driven by an upturn in drilling and pumping fossil fuels during a time of increased gasoline prices. The one non-energy strong economic region is the ring of counties surrounding Washington, D.C., which is the home of Optimism and Good News.

Housing starts, like lumber prices, will continue to experience a little buoyancy, sort of like a jellyfish hovering over the bottom of the ocean. But let's not kid ourselves, the ocean is large, and there is a deep trench just ahead, unless ocean currents take us in some other direction.

Tip Amount


Anonymous said…
I believe the media uses this tactic in an attempt to 1.Get viewers attention, and 2. Possibly "jar" the economy into pumping back up the housing market.
However, Thank you for sheding light as to the truth.
I agree, if something is not done...that trench is coming.
Anonymous said…
Hope and Change. Builders are hoping something changes.

If you keep saying the same thing over and over it will happen.

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