Builder Confidence Soars. Sharpest Rise Since 2002

Low inventories and increasing traffic have unleashed the confidence of new new home builders the National Association of Home Builders (NAHB) said today. Its Housing Market Index (HMI), issued in conjunction with Wells Fargo Bank, jumped eight points in June to a reading of 52. A score of 50 is significant to the Index as it indicates more builders view sales conditions as good than view it as poor. The eight-point jump in the index was the biggest one-month gain since August and September of 2002, when the HMI recorded a similar increase of eight points.

NAHB Chairman Rick Judson said "This is the first time the HMI has been above 50 since April 2006, and surpassing this important benchmark reflects the fact that builders are seeing better market conditions as demand for new homes increases. With the low inventory of existing homes, an increasing number of buyers are gravitating toward new homes."

The HMI is derived from a monthly survey of its builder members that NAHB has conducted for 25 years. Builders are asked to gauge the current market and the market as they expect it will look for the next six months as "good," "fair," or "poor." They are also asked to rate current buyer traffic as "high to very high," "average" or "low to very low." Responses are used to construct three measures of confidence and the composite index.

The index measuring current sales conditions also increased eight points to 56 and the index gauging future expectations was up even more - nine points to 61 - its highest point since March 2006. The index for buyer traffic, while still lagging at 40 was up seven points from May.

"Builders are experiencing some relief in the headwinds that are holding back a more robust recovery," said NAHB Chief Economist David Crowe. "Today's report is consistent with our forecast for a 29 percent increase in total housing starts this year, which would mark the first time since 2007 that starts have topped the 1 million mark."

The HMI three-month moving average was up in three of the four regions, with the Northeast and Midwest posting a one-point and three-point gain to 37 and 47, respectively. The South registered a four point gain to 46 while the West fell one point to 48.