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Kim Butler

Partners for Prosperity, Inc.

City:Mt. Enterprise

State: TX

I have 20+ years of handling alternative investments in cash, growth and income for clients nationwide.  I strive to help my clients with all things financial in every way possible over the phone and the web.  I own an alpaca farm which I enjoy working during my downtime.  I also enjoy gardening, writing and reading books.  I also train other advisors on Prosperity Economics.

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Housing Market Buoys Builder Confidence

Good news for the housing market: Confidence among home builders reaches a five-year high, according to the National Association of Home Builders.

| BY Adriana Reyneri

The Housing Market Index – a measure of confidence among home builders – hit a five-year high in May, according to data released today by the National Association of Home Builders. The index rose five points to 29, the strongest reading since May of 2007.

“Builders in many markets are reporting that buyer traffic and sales have picked back up after a pause this April,” Barry Rutenberg, chairman of the association, said in a statement. “It seems we have resumed the gradual upward trend in confidence that started at the beginning of this year, as stabilizing prices and excellent affordability encourage more people to pursue a new-home purchase.”

At the same time the modest housing recovery has been slowed by continued headwinds, said David Crowe, the association’s chief economist, in a statement. Tight credit affecting both builders and consumers, inaccurate appraisals and higher prices for building materials are impeding sales.

Since its peak in 2006, aggregate U.S. housing wealth has lost roughly one-third of its value, falling $7 trillion from $23 trillion, said Federal Reserve Gov. Elizabeth A. Duke in a speech today at the mid-year meeting of the National Association of Realtors in Washington, DC. At the same time the nation’s homeownership rate has fallen from a peak of 69 percent to 66 percent, and a “staggering” 2.2 million loans are in foreclosure and another 1.7 million loans are at least three payments behind.

The “massive dislocation” in the housing market, notwithstanding, Duke sees hope in the decline in the share of home mortgages entering delinquency over the past two years.

“There are some promising signs in the trend of house prices as well,” said Duke.  House prices continue to fall year-over-year, but the pace of decline is slowing and month-over-month prices have increased for three months in a row.  In addition, new home construction and permits have “edged up” from very low levels.

To sustain these “modest” improvements, demand for homes must strengthen or the supply of homes must fall, said Duke, explaining that investors attracted by rising rents and high affordability have absorbed some of the excess housing inventor, but demand for housing remains “stubbornly tepid.”

Weak household formation – running at about 75 percent of its normal rate of 1 million new households per year – as well as an uncertain job market, falling prices and tight credit are all depressing demand.

Underwriting standards for residential mortgages tightened steadily from 2007 to 2009, said Duke. The median credit score of prime borrowers rose from about 700 in 2006 to more than 760 in 2009, where it remains.  “Tight mortgage underwriting standards make obtaining mortgage credit particularly more difficult for first-time buyers,” said Duke. First-time buyers tend to be younger, have lower credit scores and fewer financial assets for a down payment.

Uncertainty about the job market and home prices is not only discouraging prospective buyers, but also making lenders more leery of the chances of default or an underwater mortgage. The uncertainty also makes an appraiser’s job more difficult. “In the current market, appraisers may tend to have a more conservative view of a home’s market value,” said Duke, “and, as long as house prices continue to decline, lenders may lean toward more conservative underwriting.”

According to Duke, these combined factors have the potential to cause further disruptions in the housing market.