Homebuilder Confidence Back Into Positive Territory

Homebuilder confidence in the market for new homes crossed into positive territory in July, the first time the measure has been above the crucial 50 mark since January.   The National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index (HMI) jumped four points to 53 and two of its three component measures were also firmly positive.   The HMI topped 50 in June 2013 for the first time since the beginning of the housing bust and remained positive until early this year when it crashed by 10 points, falling to 46 in February.

The HMI is derived from a survey of new home builders conducted monthly for over 30 years by NAHB. Respondents are asked to rate the current market for new home sales and their expectations for in six months on a scale of "good," "fair," or "poor."  Builders are also asked whether they perceive current buyer traffic as "high to very high," "average" or "low to very low." Scores from each component is scored individually and is used to calculate a seasonally adjusted index where any number over 50 indicates that more builders view conditions as good than poor.

All three HMI components posted gains in July. The index gauging current sales conditions increased four points to 57, while the index measuring expectations for future sales rose six points to 64.  The former index has been above 50 since June 2013 and the latter since February 2013.  Only the index gauging current buyer traffic continues to lag.  It has been below 50 since September 2005, but it too increased this month, rising by three points to 39.

"An improving job market goes hand-in-hand with a rise in builder confidence," said NAHB Chief Economist David Crowe. "As employment increases and those with jobs feel more secure about their own economic situation, they are more likely to feel comfortable about buying a home."   NAHB Chairman Kevin Kelly added, "This is the first time that builder confidence has been above 50 since January and an important sign that it is strengthening as pent-up demand brings more buyers into the marketplace."

The HMI three-month moving average rose in all four regions, with the Northeast and Midwest posting a one-point and two-point gain to 35 and 48, respectively. The West registered a five-point gain to 52 while the South rose two points to 51.