Home builder confidence is rising, but many real estate investors have reduced their exposure to the market. Is the recovery here to stay?
Builders report a fifth straight month of rising confidence in the market for new single-family homes, according to data released today, but many real estate investors have reduced their exposure to the market. What do the trends say about the state of the U.S. housing recovery?
Builder confidence is at a six-year high, according to the Housing Market Index released today by the National Association of Home Builders (NAHB) and Wells Fargo. The reading of 40 is the best since June of 2006, but indicates that more builders view the market as poor than good.
“Builders across the country are expressing a more positive outlook on current sales conditions, future sales prospects and the amount of consumer traffic they are seeing through model homes than they have in more than five years,” David Crowe, chief economist for the NAHB, said in a statement.
Improving outlook, notwithstanding, key obstacles are slowing the recovery, including rising costs of building materials, a shortage of buildable lots and persisting tight credit conditions, according to the NAHB. Builders have a expressed a higher level of confidence - a reading of 54 - in the apartment and condominium markets, according to the Multifamily Production Index released by the NAHB earlier this month.
Improvements in home prices, as well as a pickup in housing starts and employment have been tracked in an increasing number of metropolitan areas, according to the Improving Markets Index (IMI) released last week by the National Association of Home Builders and First American Title Insurance Co. The number of improving markets rose to 99 metropolitan areas in September from 80 in August.
“Combined with recent positive reports on builder confidence, housing starts and new-home sales, the September IMI adds to the growing consensus that housing is finally moving in the right direction, which in turn is spurring more potential buyers to get off the fence,” Kurt Pfotenhauer, vice chairman of Frist American Title Insurance Co., said in a statement.
The market may be showing signs of improving, but multi-millionaire real estate investors, who typically use rental property to build and consolidate their wealth, have reduced their exposure to real estate over the past two years, according to $25 Million Plus Investor 2012 from Millionaire Corner. The $25 million plus real estate investors, who received an average of nearly $1.2 million in income from rental properties last year, are growing less likely to own residential and commercial real estate. Nearly half (48 percent) of $25 million plus investors owned residential rental property in 2010, according to our research, but the share is 42 percent this year. The share owning commercial rental property has fallen from 45 percent in 2010 to 37 percent this year.
Real estate investors have also reduced the value of their holdings. Average values of residential rental property are down from nearly $4.7 in 2010 to $3.2 this year, while the average value of commercial rental property is down from $8.5 million to $6 million. Judging by their asset allocations, multi-millionaire real estate investors appear somewhat skeptical that the real estate market will rebound any time soon.