Builders Say Prospective Buyer Traffic Best Since 2005

Builder confidence in the market for newly built single family homes held steady in September after four consecutive months of improvements the National Association of Home Builders (NAHB) said today.  The Housing Market Index (HMI) it issues jointly with Wells Fargo Title Insurance registered 58 in September unchanged from the month before.

In a survey NAHB has conducted for 25 years new home builders are asked to gauge their perceptions of the current market for their product and their expectations for sales over the next six months as "good,", "fair", or "poor" and to measure current buyer traffic as "high to very high," "average," or "low to very low." Scores from each component are then used to calculate a seasonally adjusted composite index where any number over 50 indicates that more builders view conditions as good than poor.

While the component gauging current sales conditions held unchanged at 62, the component gauging sales expectations in the next six months declined three points to 65 and the component gauging traffic of prospective buyers increased one point, to 47, the highest since October 2005.

The September Economic Forecast from Fannie Mae, also released today, noted the steady increase in builder sentiment as indicated by the NAHB survey.  Fannie Mae's economists stated that the four month run-up as of the August report flew in the face of declining new home sales reported by the Census Bureau and suggested that either the builders somehow knew that the decline would be short lived or the builders would soon reverse directions.  Did the three point drop in sales expectations resolve that issue?

 "While builder confidence is holding at the highest level in nearly eight years, many are reporting some hesitancy on the part of buyers due to the sharp increase in interest rates," said NAHB Chairman Rick Judson. "Home buyers are adjusting to the fact that, while mortgage rates are still quite favorable on a historic basis, the record lows are probably a thing of the past."

"Following a solid run up in builder confidence over the past year, we are seeing a pause in the momentum as consumers wait to see where interest rates settle and as the headwinds of tight credit, shrinking supplies of lots for development and increasing labor costs continue," noted NAHB Chief Economist David Crowe.

All four regions posted gains in their three-month moving average HMI scores in September, including a two-point gain to 41 in the Northeast, a four-point gain to 64 in the Midwest, a two-point gain to 56 in the South and a four-point gain to 61 in the West, respectively.