July 19, 2011 (Jeff Alan)

Confidence among the nation’s new single-family home builders increased two points to a reading of 15 according to the National Association of Home Builders/Wells Fargo Housing Market Index (HMI) for July, partially making up for the three point dip recorded in June’s survey. The HMI has been holding steady within the same three point range nine out of the last ten months.

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.

For July, two of the three components of the HMI increased from the previous month and one remained unchanged. The largest increase was reported in the component gauging sales expectations over the next six months, which rose 7 points to a level of 22 putting the component back on par with April of this year.

The component gauging current sales conditions increased from 13 last month to 15 in July and the component gauging traffic of prospective buyers remained unchanged from last month at 12.

All regions, but the Northeast, experienced increases in this month’s HMI. The Midwest gained one point from last month moving up to 12, the South jumped up three points to 17, and the West also picked up three points moving up to 14. The Northeast slipped two points, bringing its HMI score to 15 for the month.

“The improvement in builder confidence in July is a positive sign that the outlook perhaps isn’t quite as bleak as was feared in June,” said Bob Nielsen, chairman of the National Association of Home Builders (NAHB) and a home builder from Reno, Nev. “While builders continue to confront serious challenges with regard to competition from foreclosed properties that are priced below replacement cost, inaccurate appraisals of new homes, and a very restrictive lending environment for new home construction, select markets are showing gradual improvement as consumers begin to take advantage of very favorable buying conditions.”

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