Home builder confidence in the housing market has significantly increased in the last month according to the National Association of Home Builders/Wells Fargo Housing Market Index (HMI). Builder confidence rose four points from 14 to 18. This is the largest increase the HMI has seen since the home buyer tax credit program stimulated the market in April of last year.
Home Builders Feel More Positive about the Market
The NAHB performs a monthly survey (and has been doing so for the past 20 years) which measures builder perceptions of current single-family home sales and sales expectations for the next six months as “good,” “fair” or “poor.” The survey asks builders to rate traffic of potential buyers as “high to very high,” “average” or “low to very low.” Scores from each component are then used to calculate a seasonally adjusted index where any number over 50 indicates that more builders view conditions as good rather than poor.
“Builder confidence regained some ground in October due to modest improvements in buyer interest in select markets where economic recovery is starting to take hold and where foreclosure activity has remained comparatively subdued,” said NAHB Chairman Bob Nielsen, a home builder from Reno, Nev. “That said, confidence remains quite low as builders continue to confront overly restrictive lending policies that are discouraging prospective buyers, problems with new-home appraisals and widespread uncertainty regarding federal support for homeownership.”
“This latest boost in builder confidence is a good sign that some pockets of recovery are starting to emerge across the country as extremely favorable interest rates and prices catch consumers’ attention,” said NAHB Chief Economist David Crowe. “However, it’s worth noting that while some builders have shifted their assessment of market conditions from ‘poor’ to ‘fair,’ relatively few have shifted their assessments from ‘fair’ to ‘good.’ One reason is that builders are facing downward pricing pressures from foreclosed homes at the same time that building materials costs are rising, and this is further squeezing already tight margins.”
Gains Seen in all Three Component Indexes
In October there was a marked increase in all three indexes. The component gauging current sales conditions rose 4 points to 18, the component gauging sales expectations in the next six months rose 7 points to 24, and the component gauging traffic of prospective buyers rose 3 points to 14. In other words, builders are feeling more confident about the current and future housing market. The last time the gauge was in positive territory was April 2006!
Confidence for Builders Highest in Western US Regions
Regionally, the West led all other areas of the country with its nine-point gain to 21 – the highest HMI score for that region since August of 2007. The Midwest and South each recorded four-point gains, to 15 and 19, respectively, while the Northeast held unchanged at 15.