Homebuilders More Optimistic Over the Next Six Months

New home builders are looking ahead, and the National Association of Home Builders (NAHB) says this optimism was reflected in its Housing Market Index (HMI) for February.  While the total HMI, which is also sponsored by Wells Fargo, was unchanged from January at 72, its most forward-looking component hit a post-recession high.

The HMI is derived from a monthly survey NAHB conducts among its new-home builder members. The survey asks builders for their perceptions of current market conditions for newly constructed homes and their expectations for-those conditions over the next six months, ranking each 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.

It was the question about conditions six months in the future that showed the strongest degree of confidence, gaining 2 points from January to a score of 80. The index measuring buyer traffic held steady at 54, and the component gauging current sales conditions dropped one point to 78.

NAHB chief economist Robert Dietz said, "The HMI gauge of future sales expectations has reached a post-recession high, an indicator that consumer demand for housing should grow in the months ahead. With ongoing job creation, increasing owner-occupied household formation, and a tight supply of existing home inventory, the single-family housing sector should continue to strengthen at a gradual but consistent pace."

He added that while the index shows demand conditions are positive, supply-side construction hurdles need to be managed, as scarce labor and building material price increases remain top concerns.

Regional HMI scores are expressed as three-month moving averages. The Midwest rose two points to 72, the South increased one point to 74, the West remained unchanged at 81, and Northeast fell two points to 56.