Home/Mortgages/Builder Confidence on the Rise in October

October 19, 2011 (Jeff Alan)

Confidence among the nation’s new single-family home builders was on the rise in October according to the National Association of Home Builders/Wells Fargo Housing Market Index (HMI) as buyer’s interest improved this month due to more favorable buying conditions.

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 HMI rose four points from 14 in September to 18 in October, the biggest monthly gain posted by the index since the home buyer tax credits last year.

All three components that make up the HMI posted gains from the previous month. The component gauging sales expectations over the next six months, which had declined 4 points over the last two months, bounced back with a gain of 7 points rising to 24.

The component gauging current sales conditions rose 4 points from 14 last month to18 in October and the component gauging traffic of prospective buyers gained two three points from last month to14 in October.

Regionally, the West posted the largest gain of all the regions, leaping 9 points to 21, the highest level for that region since August 2007. The Midwest and the South both posted a gain of four points to 15 and 19, respectively, and the Northeast remained unchanged at 15.

“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.”

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