Builder Confidence Hits Five Year Highs in NAHB Survey

Builder confidence as measured by the National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index (HMI) increased for the fourth straight month in August.  The HMI gained two points to rise to 37, the highest for the index since February 2007.

The HMI is based on a survey conducted monthly among NAHB's home builder members. The builders are asked to rank current home sales conditions as "good", "fair", or "poor" and to predict conditions six months hence on the same scale.  They are also asked to rank current buyer traffic as "high to very high," "average" or "low to very low".  A score of 50 on any of the components or the composite index indicates that more respondents view conditions as good than as poor.   

The three components as well as the composite all posted gains to rise to the highest levels in over five years.  The component gauging traffic of prospective buyers rose from 28 to 31 and the one measuring current sales conditions was up three points to 39.   The component gauging sales expectations over the next six months was up one point to 44.

"From the builder's perspective, current sales conditions, sales prospects for the next six months and traffic of prospective buyers are all better than they have been in more than five years," said Barry Rutenberg, chairman of NAHB.  "While there is still much room for improvement, we have come a long way from the depths of the recession and the outlook appears to be brightening."

"This fourth consecutive increase in builder confidence provides further evidence of the gradual strengthening that's occurring in many housing markets and providing a needed boost to local economies," said NAHB Chief Economist David Crowe. "However, we are still at a very fragile stage of this process and builders continue to express frustration regarding the inventory of distressed properties, inaccurate appraisal values, and the difficulty of accessing credit for both building and buying homes."

Not all builders however were upbeat.  Confidence was up nine points to 42 in the Midwest and two points in the South to 35 but fell nine points in the Northeast and three points in the West to 25 and 40 respectively. 

For the first time NAHB is using a three month regional moving index to show an alternative trend comparison.  The average was down 2 points to 29 in the Northeast but rose in the other three regions; 5 points to 35 in the Midwest, three points to 32 in the South and 3 points to 38 in the West.