Builders Voice Current Optimism; Cautious on Future Gains

The National Association of Home Builder's (NAHB)/Wells Fargo Housing Market Index (HMI) ticked up one point this month to reach its highest point since May 2007.   The HMI is a measure of builder confidence in the health of the new home market. 

The HMI was at 29 in June compared to a revised index of 28 in May.  The index is based on a monthly survey of NAHB's homebuilder members who are asked to assess the market using three measures.  What is their perception of current single family home sales, "good," "fair," or "poor?"  What do they expect sales to be over the next six months on the same scale; and do they rate the 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 June increase in the HMI came from increased optimism over current sales while builders remain cautious about future prospects.  The component measuring current sales rose two points to 32, the highest score since April 2007.  However, the components measuring sales expectations over the next six months and current buyer traffic remained unchanged at 34 and 23 respectively.

"This month's modest uptick in builder confidence comes on the heels of a four-point gain in May and is reflective of the continued, gradual improvement we are seeing in many individual housing markets as more buyers decide to take advantage of today's low prices and interest rates," said Barry Rutenberg, chairman of NAHB. 

Regionally, the HMI results were mixed in June, with the Midwest registering a five-point gain to 31 and the West a four-point gain to 33.  The Northeast and South each posted two-point declines, to 29 and 26, respectively.

"While the June HMI is in keeping with our forecast for gradually improving single-family home sales this year, recent economic reports that have shown some weakening in the pace of recovery likely factored into the marginal gain," said NAHB Chief Economist David Crowe. "In addition, builders across the country continue to report that overly tight lending conditions and inaccurate appraisals are major obstacles to completing sales at this time."