Builder confidence rises five points to highest level since Oct. 2008

Builder confidence in the market for newly built, single-family homes rose five points in April to the highest level since October 2008, according to the most recent National Association of Home Builders/Wells Fargo Housing Market Index (HMI) report. It was the largest one-month increase recorded since May of 2003, and brings the HMI to 14, out of single-digit territory for the first time in six months. Every component of the HMI reflected the boost, with the biggest gain recorded for sales expectations in the next six months, according to the report.

“This is a very encouraging sign that we are at or near the bottom of the current housing depression,” said NAHB Chief Economist David Crowe. “With the prime home buying season now underway, builders report that more buyers are responding to the pull of much-improved affordability measures, including low home prices, extremely favorable mortgage rates, and the introduction of the $8,000 first-time home buyer tax credit.”

Each of the HMI’s component indexes recorded substantial gains in April, with a 10-point increase in the component gauging builder sales expectations for the next six months, bringing that index to 25. The component gauging current sales conditions and the component gauging traffic of prospective buyers each rose five points, to 13 and 14, respectively, according to the report.

Home buyer tax credit can be applied to purchase costs

U.S. Dept. of Housing and Urban Development (HUD) Secretary Shaun Donovan recently announced that the Federal Housing Administration (FHA) will allow home buyers to apply the administration's new $8,000 first-time home buyer tax credit toward the purchase costs of a FHA-insured home. The American Recovery and Reinvestment Act of 2009 offers home buyers a tax credit of up to $8,000 for purchasing their first home. Families can only access this credit after filing their tax returns with the IRS. Home buyers using FHA-approved lenders can apply the tax credit to their down payment in excess of 3.5 percent of appraised value or their closing costs, which can help achieve a lower interest rate.

Currently, borrowers applying for an FHA-insured mortgage are required to make a minimum 3.5 percent down payment on the purchase of their home. Current law does not permit approved lenders to monetize the tax credit to meet the required 3.5 percent minimum down payment, but, under the terms of the announcement, lenders can now monetize the tax credit for use as additional down payment, or for other closing costs, which can help achieve a lower interest rate.