Builder confidence levels on the rise
For the fourth consecutive month, the National Association of Home Builders/Wells Fargo Housing Market Index (HMI) indicates builder confidence in the market for newly built, single-family homes is on the rise, improving two points to 37 in August, after the Index experienced a six point increase in July. Confidence levels have improved to February 2007 levels.
While most news outlets and associations will use this data to show a recovery, it must be noted that any Index reading under 50 percent means that less builders have confidence in the market than those that do, meaning the market has quite a ways to go before there is any consensus that new home construction will be okay.
Room for improvement, but good news
“From the builder’s perspective, current sales conditions, sales prospects for the next six months and traffic of prospective buyers are all better than they have been in more than five years,” said Barry Rutenberg, chairman of the National Association of Home Builders (NAHB) and a home builder from Gainesville, Fla. “While there is still much room for improvement, we have come a long way from the depths of the recession and the outlook appears to be brightening.”
“This fourth consecutive increase in builder confidence provides further evidence of the gradual strengthening that’s occurring in many housing markets and providing a needed boost to local economies,” said NAHB Chief Economist David Crowe. “However, we are still at a very fragile stage of this process and builders continue to express frustration regarding the inventory of distressed properties, inaccurate appraisal values, and the difficulty of accessing credit for both building and buying homes.”
Specific indices and regional performance
Builder confidence in the current sales conditions and traffic of prospective buyers both rose three points to 39 and 31, respectively, while the reading for sales expectations in the next six months rose one point to 44. The NAHB notes that all indices were at their highest levels in over five years.
Regionally, builder confidence rose nine points to 42 in the Midwest and two points to 35 in the South, but declined nine points to 25 in the Northeast and three points to 40 in the West in August.
For the August HMI release, NAHB is introducing an alternative trend comparison of regional HMIs by also showing a three-month moving average of each region’s index. The current three-month moving averages show a two-point decline to 29 in the Northeast, a five-point gain to 35 in the Midwest, a three-point gain to 32 in the South and a three-point gain to 38 in the West.