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Hope for America's Home Builders
Wednesday, February 15, 2012

It's been a rough ride for the construction industry and home builders due to the recession but good news is coming. Home builders are feeling optimistic about a pick up in the depressed housing market for the spring season.

According to The National Association of Home Builders/Wells Fargo, February marked its fifth straight month of rises in their builder sentiment index which is now at 29, up from last month's 25. The index climbed 15 points since Septemeber and is now at its highest level since May 2007.

The industry still has a long way to go even with this new light of hope. Readings below 50 are a negative indicator toward the sentiment about the housing market. The last time the index reached 50 was in April 2006 at the height of the housing boom.

The report still shows, however, that builders are taking the index increases as positive reassurance and are generally more hopeful for the months to come. Another reason for the optimism is that they're seeing more people express interest in buying a home.

Some additional promising points: Sales of previously owned or rented homes rose in December for a third straight month, mortgage rates are at a low, and home construction picked up in the final quarter of last year.

Despite all this positive energy, home prices are still falling and builders are cutting more costs to keep the business coming. In fact, last year saw the worst records for new-home sales since 1963.

Chief U.S. economist for High Frequency Economics, Ian Shepherdson, said that the index is now consistent with the new-hme sales rising to more than 450,000 annually. This figure is still below the considered healthy at 700,000 but would still be an improvement from the recent trend of just over 300,000.

New homes makes up just a small percentage of housing sales but still have an outsize impact on the economy. The builder trade group says each new home built creates an average of three jobs a year and about $90,000 in taxes.

With rampant foreclosures happening nationwide, builders are struggling to compete with the forced down prices of previously occupied homes. On top of that, many people are having difficulty qualifying for loans or meeting higher required down payments,  not to mention selling their own homes first.

Those who are in a position to buy a home are getting the advantages of the lower prices and mortgage rates. But even while the average rate on the 30-year fixed mortgage is at record lows below 4 percent, it's done little jump home sales.

Certain areas of the country are showing more strength than others when it comes to buying. Places like New Orleans, Pittsburgh and other smaller areas of Texas have particularly reported increased buying. Slowly but surely, the housing market is proving to make a comeback but it's bound to be a long and arduous one until the overall economy regains its footing.