Tax Credit Bouys Home Builder Confidence in August

Builder confidence in the market for newly built, single-family homes rose one point in August to its highest level in more than a year, according to the latest reading of the National Association of Home Builders Housing Market Index (HMI), released today.

Building on a two-point gain in July, the HMI reached 18 this month, its highest point since June of 2008, the August Housing Market Index (HMI) issued each month by the National Association of Home Builders and Wells Fargo, rose for the second time in as many months to 18, the highest score since June, 2008.

The survey asks builders to rate their local single-family housing market in three ways; their perceptions of current home sales; their expectations for sales over the next six months, and their assessment of the current amount of buyer traffic.  Builders rate the first two as “good,” “fair,” or “poor” while the traffic is measured on a scale of “high to very high,” “average,” or “low to very low.”   Scores for each component are used to construct a seasonally adjusted composite score and each component is also scaled on its own.  Any score over 50 indicates that the majority of builders consider sales conditions as good rather than poor. 

The composite score for August was up 1 point from July which, in turn, was 2 points higher than June.  The index has been inching up from a low of 8 reached in January, 2008.

The index measuring the present market was unchanged at 16, but builders are seeing a brighter future.  They assessed current buyer traffic at 16, up three points while the index measuring expectations over six months was up 4 points to 30, twice the rating builders gave in February and March of this year.

NAHB Chairman Joe Robson said, “Home builder expectations have been buoyed by the success of the first-time home buyer tax credit and its anticipated boost to buying activity leading up to the Nov. 30 expiration date.  The question is what happens after that – whether there will be enough momentum to keep us moving toward a recovery, particularly in light of significant headwinds such as the severe credit crunch for housing production loans and inappropriate appraisal practices that are scuttling a quarter of all new-home sales. Unless Congress and the Administration focus their attention on housing right now, this improvement may well be short-lived,” he said.

“One very positive aspect of today’s report is the big gain registered in the component gauging home builders’ expectations for the next six months,” noted NAHB Chief Economist David Crowe. “This reflects anticipated sales stemming from the tax credit as well as recent signs that an economic recovery has begun. There is definitely a sense of hope among builders that the worst of the downturn is over and that a turning point is near at hand. Meaningful action by Congress could ensure that this upward momentum continues and that housing can help push the economy back onto solid ground.”

The index for the Southern Region was down one point to 18, but all of the other regional indices recorded gains with the Northeast rising 8 points to 24.  The Midwest increased 2 points to 16 and the West rose three points to 17.