Home/Mortgages/Home Builder Confidence Moves Up a Notch in October

October 17, 2012 (Jeff Alan)

Confidence among the nation’s new home builders moved up a notch in October according to the National Association of Home Builders/Wells Fargo Housing Market Index (HMI), reaching its highest level since June 2006.

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 climbed one point, from 40 in September to 41 in October, and follows a three-point increase in September.

Only one of the three components that make up the HMI posted a gain in October while the other two components remained unchanged. The component measuring traffic of prospective buyers increased from 30 points in September to 35 in October.

The component gauging sales expectations over the next six months remained unchanged at 51 while the component measuring current sales conditions remained at 42.

NAHB Chief Economist David Crowe stated, “The slight gain in builder confidence this month is an indication that, while still moving forward, the speed at which the housing recovery is proceeding is being moderated by the various constraints such as tight credit, difficult appraisals and more recently, the limited inventory of buildable lots in certain markets. These are the complicating factors that make it difficult for builder confidence to reach and surpass the 50-point mark, at which an equal number of builders view sales conditions as good versus poor.”

Three of the four regions in the HMI posted gains for the month. The South led with a three point gain to 39 followed by the Midwest and the West which both increased by 2 points to 42 and 44, respective. The Northeast remained unchanged at 29.

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