Builder Confidence Loses Steam after Four Months of Gains

The National Association of Home Builders (NAHB) said on Thursday that sentiment among its new home builder members reversed course in October, with few of those responding to its monthly survey viewing the current market for new homes as a good one.  The NAHB/Wells Fargo Housing Market Index (HMI) declined four points from September, falling to a score of 54.  The change came after four straight months of improvement during which the HMI passed the milestone 50 level for the first time since January.

"While there was a dip this month, builders are still positive about the housing market," David Crowe, NAHB Chief Economist said.  "After the HMI posted a nine-year high in September, it's not surprising to see the number drop in October.  However, historically low mortgage interest rates, steady job gains, and significant pent up demand all point to continued growth of the housing market."

NAHB Chairman Kevin Kelly called the return to the mid-50s level established earlier in the summer "In line with the gradual pace of the housing recovery."

NAHB's survey asks builders for their perceptions of current single family home sales and sales expectations for the next six months as "good," "fair" or "poor." The survey also asks builders to rate traffic of prospective buyers as "high to very high," "average" or "low to very low." Scores from each component are then used to calculate a seasonally adjusted index where any number over 50 indicates that more builders view conditions as good than poor.

All three components derived from the survey showed decreased expectations compared to September.  The index gauging current sales conditions fell six points to 57, the index measuring future expectations fell from 67 to 64 and the index measuring perceptions of current buyer traffic was down to 41 from 47.  The last index has not crossed the 50 mark since October 2005.

NAHB has conducted its survey since 1985.  The HMI hit an all-time high of 77 in June 1999 and dipped to 8 in January 2009.

Looking at the three-month moving averages for regional HMI scores, the Northeast and Midwest remained flat at 41 and 59, respectively. The South rose two points to 58 and the West registered a one-point loss to 57.