After rising for four consecutive months, builder confidence in the market for newly built single-family homes in October fell to a score of 54 on the National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index (HMI).
In September, NAHB reported that builder confidence had reached a score of 59 on the index – the highest point since November 2005.
‘We are seeing a return to the mid-50s index level trend established earlier in the summer, which is in line with the gradual pace of the housing recovery,’ says Kevin Kelly, chairman of NAHB, in a release.
Kelly noted that although there was a dip, ‘builders are still positive about the housing market.’ An index score of over 50 means a majority of builders are confident in the market – however, when the index dips below 50, that means a majority lack confidence.
‘After the HMI posted a nine-year high in September, it's not surprising to see the number drop in October,’ adds David Crowe, chief economist for NAHB. ‘However, historically low mortgage interest rates, steady job gains and significant pent-up demand all point to continued growth of the housing market.’
News of the drop comes less than a week after NAHB released the results of a survey showing that home builders think tighter lending standards are hurting the housing industry. More than half of the single-family builders surveyed indicated that lending standards were ‘tight’ or ‘very tight,’ while only 11% indicated that standards were ‘somewhat easy.’ No builders described lending standards as ‘very easy.’
‘While housing has seen some positive growth throughout the year, there is no denying that tight credit conditions are hindering a full, healthy housing recovery,’ Crowe says in a separate release. ‘These persistently tight mortgage credit standards continue to limit the number of creditworthy borrowers, particularly younger families and first-time home buyers, from entering the housing market.’
When asked if they had lost any sales over the last six months due to buyers not qualifying for a mortgage, 83% of builders answered ‘yes.’ Of these, the average share of sales lost was 9.7%, according to NAHB.
This translates to about 18,700 new home sales lost because buyers were unable to qualify for mortgages.
‘NAHB advocates for prudent lending standards, but we've seen banks and regulators swing the pendulum too far and create an environment where lending standards are too restrictive,’ Kelly says. ‘We want a return to reasonable lending standards where qualified borrowers are able to obtain a mortgage and create the American Dream for themselves.’
NAHB supports housing finance reform policies that would help reverse tight lending conditions, including improved credit scoring models; a reduction of guarantee fees; and passage of the Housing Finance Reform and Taxpayer Protection Act of 2014.
It also supports the Federal Housing Administration's and Federal Housing Finance Agency's efforts to reduce lender concern over mortgage insurance denials and forced loan buybacks.