Builder Confidence Jumps to Highest Level in Six Years

Builder confidence took its biggest leap in nearly a decade according to data released this morning by the National Association of Home Builders (NAHB).  The NAHB/Wells Fargo Housing Market Index (HMI) rose six points in July to 35, the highest level it has seen since March of 2007 and each of its component indices improved as well.

The HMI is derived from a monthly survey NAHB has conducted among its home builder members for a quarter century.  The survey asks for perceptions of current single-family home sales and builder expectations for sales over the upcoming six months as "good," "fair," or "poor," and to rate traffic of prospective buyers as "high to very high," "average" "low to very low".  The answers to each component question is used to create a seasonally adjusted composite index where any number over 50 indicates that more builders view conditions as good  than view them as poor.

The component gauging current sales conditions rose six points to 37 and the measurement of buyer traffic was up six points to 29.  The component indicating sales expectations for the next six months soared 11 points to 44.

"Combined with the upward movement we've seen in other key housing indicators over the past six months, this report adds to the growing acknowledgement that housing - though still in a fragile stage of recovery - is returning to its more traditional role of leading the economy out of recession," noted NAHB Chief Economist David Crowe. "This is particularly encouraging at a time when other parts of the economy have begun to show softness, and is all the more reason that the challenges constraining housing's recovery - namely overly tight lending conditions, poor appraisals and the flow of distressed properties onto the market - need to be resolved."

The growing optimism was national in scope. The HMI in the Northeast region rose 9 points to 36 while the Midwest gained 3 points to 34.  The South registered a 5 point increase to 32 and the West was up 12 points to 44.

 "Builder confidence increased by solid margins in every region of the country in July as views of current sales conditions, prospects for future sales and traffic of prospective buyers all improved," said Barry Rutenberg, chairman of the NAHB.  "This is greater evidence that the housing market has turned the corner as more buyers perceive the benefits of purchasing a newly built home while interest rates and prices are so favorable."