Home/Mortgages/Home Builder Confidence Keeps Momentum

February 27, 2012 (Jeff Alan)

The spike in new home starts at the end of 2011 helped bolster the confidence among the nation’s home builders resulting in a four point gain to the National Association of Home Builders/Wells Fargo Housing Market Index (HMI) in February, bringing the index to the highest level in more than four years.

The HMI is derived from a survey that the National Association of Home Builders (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 four points to 29 in February and follows a similar four point increase in January. February’s increase was the fifth consecutive monthly increase for the index.

Barry Rutenberg, chairman of NAHB, stated, “Builder confidence has doubled since September as measured by the HMI. Given the recent improvements in new home starts and the increasing number of markets included in the NAHB/First American Improving Markets Index, this consistency suggests that the housing market is moving toward more sustainable growth.”

All three components that make up the HMI also posted gains for the fifth consecutive month. The component gauging sales expectations over the next six months gained five points, rising to 34, and follows a three point gain in January.

The component gauging current sales conditions also rose five points, from 25 last month to 30 in February, and the component gauging traffic of prospective buyers gained one point from last month to 22 in February, the highest level for that component since June 2007.

Two of the four regions in the HMI posted gains with the West reporting the largest gain, climbing a whopping 23 points to 44, followed by the Midwest, which posted a six point gain to 30. The South fell three points, moving down to 25, while the Northeast posted a two point decline to 21.

NAHB Chief Economist David Crowe stated, “This is the longest period of sustained improvement we have seen in the HMI since 2007, which is encouraging. However, it is important to remember that the HMI is still very low, and several factors continue to constrain the market. Foreclosures are still competing with new home sales, and many builders are seeing appraisals come in at less than the cost of construction. Additionally, prospective home buyers are finding it difficult to qualify for a mortgage.”

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