Builder Confidence Index Stalls after Eight Months of Improvement

By: Jann Swanson

Following eight consecutive months of increases the National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index (HMI) held steady in January.  The current level of 47 remains the highest point for the Index since April 2006.

The HMI is compiled from responses to a survey conducted monthly by NAHB in which its home-builder members are asked to rate their current perceptions of buyer activity and what they expect it to be six months hence as "good," "fair," or "poor."  They are also asked to rate current traffic of buyers as "high to very high," "average" or "low to very low."   Scores from each component are used to calculate a seasonally adjusted index where any number over 50 indicates that more builders view conditions as good than poor.

The index's components were mixed in January. The component gauging current sales conditions remained unchanged at 51. Meanwhile, the component gauging sales expectations in the next six months fell one point to 49 and the component gauging traffic of prospective buyers gained one point to 37.

The HMI three-month moving average was up across all regions, with the Northeast and Midwest posting a two-point gain to 36 and 50, respectively. The South registered a three-point gain to 49 and the West posted a four-point increase to 51.
 
"Conditions in the housing market look much better now than at the beginning of 2012 and an increasing number of housing markets are showing signs of recovery, which should bode well for future home sales later this year," said Barry Rutenberg, chairman of the National Association of Home Builders (NAHB).   "However, uncertainties stemming from last month's fiscal cliff negotiations contributed to the pause in builder confidence and continuing discussions among policymakers related to spending cuts and the future of the mortgage interest deduction could put a damper on housing demand in the coming months."

"Builders' sentiment remains very close to the index's tipping point of 50, where an equal number of builders view conditions as good and poor, and fundamentals indicate continued momentum in housing this year," said NAHB Chief Economist David Crowe. "However, persistently tight mortgage credit conditions, difficulties in obtaining accurate appraisals and the ongoing stalemate in Washington over critical economic concerns continue to impede the housing recovery."

Home Builder Confidence