November 17, 2011 (Jeff Alan)

Confidence among the nation’s new single-family home builders jumped another three points in November according to the National Association of Home Builders/Wells Fargo Housing Market Index (HMI), bringing the index to the highest level since May 2010.

The HMI is derived from a survey that NAHB has been conducting for over 20 years. The index gauges builder perceptions of current single family home sales and sales expectations for the next six months as “good, fair, or poor.” Builders are also asked to rate traffic of prospective buyers as “high to very high, average or low to very low.” Each component is then used to calculate a seasonally adjusted index where a score over 50 indicates builder’s view sales conditions as good.

The index rose three points to 20 in November, the same increase as in October, which had been revised downward from a four point increase to three. November’s increase was the second consecutive monthly increase for the index.

“While this second solid monthly gain on the builder confidence scale is encouraging, the overall measure remains quite low due to the many challenges that home building continues to face with regard to the high number of foreclosures, the difficulties of obtaining construction financing and accurate appraisals, and the restrictive lending environment that is discouraging potential buyers,” said Bob Nielsen, NAHB Chairman and a home builder from Reno, Nev. “These problems must be addressed so that housing can contribute to economic and job growth the way it has in the past.”

All three components that make up the HMI posted gains from the previous month. The component gauging sales expectations over the next six months gained two points, rising to 24, and follows a revised six point gain in October. Sales expectations were at their highest level since last March.

The component gauging current sales conditions rose three points, from a revised 17 last month to 20 in November, and the component gauging traffic of prospective buyers gained one point from last month to 15 in November. Both components were at their highest levels since May 2010.

Three of the four regions posted gains with the Midwest posting the largest gain of all the regions, leaping 8 points to 23, while The Northeast and the South posted gains of three points to 17 and two points to 21, respectively.

The West suffered the only decline, six points to 15, after posting an increase of seven points in October.

“This second consecutive gain in the HMI is evidence that well-qualified buyers in select areas are being tempted back into the market by today’s extremely favorable mortgage rates and prices,” said NAHB Chief Economist David Crowe. “We are anticipating further, gradual gains in the builder confidence gauge heading into 2012 due to these pockets of improving conditions that are slowly spreading.”

Tags: NAHB, Wells Fargo, Housing Market Index, HMI, homebuilders, sales expectations, builder confidence, single-family homes