January 19, 2012 (Jeff Alan)

Although sales of new single-family homes are still near historic lows, recent gains in housing starts and sales have bolstered 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 January, bringing the index to the highest level since June 2007.

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 25 in January and follows a two point increase in December. January’s increase was the fourth consecutive monthly increase for the index.

Bob Nielsen, chairman of (NAHB), stated, “Builder confidence has now risen four months in a row, with the latest uptick being universally represented across every index component and region. This good news comes on the heels of several months of gains in single-family housing starts and sales, and is yet another indication of the gradual but steady improvement that is beginning to take hold in an increasing number of housing markets nationwide — and that has been shown by our Improving Markets Index. Policymakers must now take every precaution to avoid derailing this nascent recovery.”

All three components that make up the HMI also posted gains for the fourth consecutive month. The component gauging sales expectations over the next six months gained three points, rising to 29, and follows a one point gain in December.

The component gauging current sales conditions rose three points, from 22 last month to 25 in January, and the component gauging traffic of prospective buyers also gained three points from last month to 21 in January, the highest level for that component since June 2007.

All four of the regions posted gains with the Northeast reporting the largest gain, climbing nine points to 23, followed by the West, which posted a five point gain to 21. The South gained two points, moving up to 27, while the Midwest posted a one point gain to 24.

NAHB Chief Economist David Crowe stated, “Builders are seeing greater interest among potential buyers as employment and consumer confidence slowly improve in a growing number of markets, and this has helped to move the confidence gauge up from near-historic lows in the first half of 2011. That said, caution remains the word of the day as many builders continue to voice concerns about potential clients being unable to qualify for an affordable mortgage, appraisals coming through below construction cost, and the continuing flow of foreclosed properties hitting the market.”

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