Home/Mortgages/Homebuilder Confidence on a Roll

December 23, 2011 (Jeff Alan)

Confidence among the nation’s new single-family home builders increased for the third consecutive month, adding another two points to the National Association of Home Builders/Wells Fargo Housing Market Index (HMI) in December, bringing the index to the highest level since May 2010.

The HMI is derived from a survey that 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 two points to 21 in December, the same increase as in November, which had been revised downward from a three point increase to two. December’s increase was the third consecutive monthly increase for the index.

“While builder confidence remains low, the consistent gains registered over the past several months are an indication that pockets of recovery are slowly starting to emerge in scattered housing markets,” said Bob Nielsen, chairman of the National Association of Home Builders (NAHB) and a home builder from Reno, Nev. “However, the difficulties that both builders and buyers continue to experience in accessing credit for new homes are holding back potential sales even in areas where economic conditions are improving.”

All three components that make up the HMI also posted gains for the third consecutive month. The component gauging sales expectations over the next six months gained one point, rising to 26, and follows a revised one point gain in November.

The component gauging current sales conditions rose two points, from 20 last month to 22 in December, and the component gauging traffic of prospective buyers gained three points from last month to 18 in December, the highest level for that component since May 2008.

Two of the four regions posted gains with the South reporting the largest gain, climbing four points to 25, followed by the West, which posted a one point gain to 16. The Midwest remained unchanged from the previous month at 24 and the Northeast lost a point, declining to 15.

NAHB Chief Economist David Crowe stated, “This is the first time that builder confidence has improved for three consecutive months since mid-2009, which signifies a legitimate though slowly emerging upward trend. While large inventories of foreclosed properties continue to plague the most distressed markets and consumer worries about job security and the challenges of selling an existing home remain significant factors, builders are reporting more inquiries and more interest among potential buyers than they have seen in previous months.”

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