Builder Sentiment Recovers after April Drop

After a bad showing in April the National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index (HMI) has rebounded, hitting its highest reading since May 2007.  The index, which measures home builder confidence, rose five points from its April level to 29 in May.

The HMI derives from a monthly survey of its homebuilder members which NAHB has conducted for 25 years.  The survey gauges builders' perceptions of current sales of single family homes as "good," "fair," or "poor,"; their sales expectations for the next six months on the same scale, and asks them to rate current traffic of prospective buyers as "high to very high," "average," or "low to very low."  Each component is scored separately and also used to construct the HMI.  A score of 50 on any of the four indices indicate that more builders view the market as good than poor.

The three components also improved on their declining numbers in April.  The components gauging current sales conditions and buyer traffic were each up five points to 30 and 23 respectively.  This was the highest level for the traffic component since April of 2007.  The component measuring sales expectations rose 3 points to 34.

"Builders in many markets are reporting that buyer traffic and sales have picked back up after a pause this April," said Barry Rutenberg, NAHB chairman. "It seems we have resumed the gradual upward trend in confidence that started at the beginning of this year, as stabilizing prices and excellent affordability encourage more people to pursue a new-home purchase." 

Three out of four regions registered improving builder sentiment in May. This included a six-point gain to 32 in the Northeast, and five-point gains to 27 and 28 in the Midwest and South, respectively. The West posted a two-point decline, to 29.

"While home building still has quite a way to go toward a fully healthy market, the fact that the HMI has returned to trend is an excellent sign that firming home values, improving employment and low mortgage rates are drawing consumers back," said NAHB Chief Economist David Crowe. "The pace of this emerging recovery could be stronger were it not for the significant impediments that the market continues to face with regard to builder and consumer access to credit, inaccurate appraisals, and more recently, rising materials prices."