Builder Confidence Down From 18-Year High, Still Strong

The National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index (HMI), which hit an 18-year high in December, backed off a bit this month.  NAHB said the composite index, a measure of builder confidence in the market for new homes, was down 2 points from that new peak to 72. All three of the Index components moved down slightly.

 "Builders are confident that changes to the tax code will promote the small business sector and boost broader economic growth," said NAHB Chairman Randy Noel. "Our members are excited about the year ahead, even as they continue to face building material price increases and shortages of labor and lots."

Analysts had expected a slight decline in the index after its five-point surge in December.  Those polled by Econoday had a consensus of 73, with a range of 70 to 75.

The HMI is derived from the NAHB's monthly survey that asks builders to quantify the current market for single-family home sales as well as their 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 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.

Builder responses regarding the current market caused that component to retreat by one point to 79. Their expectations for future sales moved that part of the index down a single point as well, to 78. The measure of buyer traffic, which consistently lags the others, fell four points to 54.

"The HMI gauge of future sales expectations has remained in the 70s, a sign that housing demand should continue to grow in 2018," said NAHB Chief Economist Robert Dietz. "As the overall economy strengthens, owner-occupied household formation increases and the supply of existing home inventory tightens, we can expect the single-family housing market to make further gains this year."

Regional index levels are reported as three-month moving averages.  The composite score in the West rose two points to 81, the South increased one point to 73, the Midwest inched up a single point to 70 and Northeast climbed five points to 59.