Home/Mortgages/Home Builder Confidence Posts Largest Increase in a Decade

July 19, 2012 (Jeff Alan)

The prospects of a recovering housing market lifted the confidence of the nation’s new home builders to their highest level since March of 2007 according to the National Association of Home Builders/Wells Fargo Housing Market Index (HMI).

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 six points, from 29 in June to 35 in July, and follows a one point gain in June. It was the largest increase recorded by the Index in nearly a decade.

Barry Rutenberg, chairman of NAHB, stated, “Builder confidence increased by solid margins in every region of the country in July as views of current sales conditions, prospects for future sales and traffic of prospective buyers all improved. This is greater evidence that the housing market has turned the corner as more buyers perceive the benefits of purchasing a newly built home while interest rates and prices are so favorable.”

All three of the components that make up the HMI posted a gain for the month, up from one the previous month. The component gauging current sales conditions gained six points, climbing to 37 from a revised 31 in June. July’s gain follows a one point gain in June.

The component gauging traffic of prospective buyers also increased by six points in July, climbing from 23 to 29, while the component gauging sales expectations over the next six months jumped 11 points, from a revised 33 to 44.

All four of the regions in the HMI posted gains for the month. The West led with a 12 point jump to 44 followed by the Northeast which posted a gain of eight points to 36, while the South recorded an increase of five points to 32 and the Midwest had a three point gain, climbing to 34.

NAHB Chief Economist David Crowe stated, “Combined with the upward movement we’ve seen in other key housing indicators over the past six months, this report adds to the growing acknowledgement that housing – though still in a fragile stage of recovery – is returning to its more traditional role of leading the economy out of recession. This is particularly encouraging at a time when other parts of the economy have begun to show softness, and is all the more reason that the challenges constraining housing’s recovery – namely overly tight lending conditions, poor appraisals and the flow of distressed properties onto the market – need to be resolved.”

The nation’s homebuilders received more good news in July as new home sales and housing starts both increased in the last month.

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