Increased Sense of Urgency Amongst Home Buyers Sends Builder Confidence Higher

Builder confidence has perked up again.  After dropping three points in April to 41, the National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index (HMI) rebounded to 44 this month, reflecting improvement in all three of its component measures.

"Builders are noting an increased sense of urgency among potential buyers as a result of thinning inventories of homes for sale, continuing affordable mortgage rates and strengthening local economies," noted National Association of Home Builders (NAHB) Chairman Rick Judson. "This is definitely an encouraging sign even amidst rising challenges with regard to the cost and availability of building materials, lots and labor."

The HMI is derived from responses to three questions in a monthly survey conducted by NAHB among its new home builder members.  Participants are asked to gauge both current sales and sales expectations over the next six months as "good", "fair", or "poor," and to rate the current traffic of prospective buyers as "high to very high," "average" or "low to very low." Scores for each component are then used to calculate a seasonally adjusted index.  A number over 50 for the composite of any of the components indicates that more builders view conditions as good than poor.

The component measuring current sales conditions increased four points to 48 and the one gauging future sales increased one point to 53, the highest level since February 2007.  Prospective buyer traffic was rated at a 33 compared to 30 in April.

"While industry supply chains will take time to re-establish themselves following recession-related cutbacks, builders' views of current sales conditions have improved and expectations for the future remain quite strong as consumers head back to the market in force," said NAHB Chief Economist David Crowe.

Three of the four regions showed no movement along the three month moving averages of their composite scores.  The Northeast remained at 37, the Midwest at 45, and the South at 42.  The West dropped six points to 49