Builder Confidence Matches Post-Crisis High

After half a year of barely budging the Housing Market Index (HMI) surged by six points in September.  The index, jointly sponsored by the National Association of Home Builders (NAHB) and Wells Fargo, jumped from a downwardly revised 59 in August to 65.  It is the highest level for the index since October when it also hit 65.  The HMI, a measure of home builder confidence in the new home market, has been fluctuating in a narrow range between 58 and 61 since last December.

Analysts surveyed by Econoday had anticipated the index would remain in the doldrums.  Their consensus was for a composite level of 60.

The HMI composite index contains three components each gauging home builder responses to a survey that NAHB has been conducting for 30 years.  Builders are asked to give their perceptions of current single-family home sales and their expectation for the sales over 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 for 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 made strong gains from their August levels.  The component measuring current sales expectations rose six points to 71 and the gauge charting sales expectations in the next six months increased five points to also stand at 71. The index measuring traffic of prospective buyers posted a four-point gain to 48.

"As household incomes rise, builders in many markets across the nation are reporting they are seeing more serious buyers, a positive sign that the housing market continues to move forward," said NAHB Chairman Ed Brady. "The single-family market continues to make gradual gains and we expect this upward momentum will build throughout the remainder of the year and into 2017."

"With the inventory of new and existing homes remaining tight, builders are confident that if they can build more homes they can sell them," said NAHB Chief Economist Robert Dietz. "Though solid job creation and low interest rates are also fueling demand, builders continue to be hampered by supply-side constraints that include shortages of labor and lots."

The HMI levels in the four regions of the country are reported as three-month moving averages.  Those averages were higher in three of the four regions and was unchanged in the fourth. The Northeast and South each registered a one-point gain to 42 and 64, respectively, while the West rose four points to 73. The Midwest remained the August level of 55.