Home/Mortgages/Home Builders Still Expect Improvement in Future Sales

March 20, 2012 (Jeff Alan)

Confidence among the nation’s new home builders was unchanged from the previous month according to the National Association of Home Builders/Wells Fargo Housing Market Index (HMI) in March, however, expectations of improved future sales increased for the sixth consecutive month.

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 remained unchanged at 28 in March and follows five consecutive months of increases. The HMI in February was revised downward from 29 to 28.

Barry Rutenberg, chairman of NAHB, stated, “While builders are still very cautious at this time, there is a sense that many local housing markets have started to move in the right direction and that prospects for future sales are improving. This is demonstrated by the fact that the HMI component measuring builder expectations continued climbing for a sixth straight month in March, to its highest level in more than four years.”

The three components that make up the HMI were mixed for the month with the component gauging sales expectations over the next six months gaining two points, rising to 36, and follows a five point gain in February. It was the sixth consecutive month that builders expected an improvement in future sales.

The component gauging current sales conditions declined one point, from 30 last month to 29 in March, and the component gauging traffic of prospective buyers remained unchanged from last month at 22, keeping that component at its highest level since June 2007.

Three of the four regions in the HMI posted gains with the Northeast reporting the largest gain, climbing five points to 25, followed by the Midwest, which posted a two point gain to 32, and the South which posted a similar two point gain to 27. The West fell ten points to 33 following a revised 22 point gain in February.

NAHB Chief Economist David Crowe stated, “Builder confidence is now twice as strong as it was six months ago, and the West was the only region to experience a decline this month following an unusual spike in February. That said, many of our members continue to cite obstacles on the road to recovery, including persistently tight builder and buyer credit and the ongoing inventory of distressed properties in some markets.”

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