Builder Confidence: Strong but Unchanged, Material Costs Rising

As analysts had expected, the National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index (HMI) remained at 68 this month.  The reading still indicates a strong level of builder confidence in the new home market, but the HMI has been relatively static for months, moving within a two-point range, 68 to 70, since March.

NAHB surveys its new home building members monthly on their attitude toward the market.  They are asked to grade their perceptions of the current market and the market they expect 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.  NAHB has been conducting the survey for more than 30 years.

In July the HMI component index measuring current sales conditions was also unchanged at 74 while the component gauging expectations over the next six months dropped from 75 to 73.  Builders boosted their perceptions about buyer traffic, raising that index by two points to 52.

NAHB Chairman Randy Noel said, "Consumer demand for single-family homes is holding strong this summer, buoyed by steady job growth, income gains and low unemployment in many parts of the country." However, NAHB Chief Economist Robert Dietz pointed out that, while demand for new homes is growing, builders are burdened by rising material costs.  "Builders need to manage these cost increases as they strive to provide competitively priced homes, especially as more first-time home buyers enter the housing market," he said.

Regional results are presented as three-month moving averages.  The index for the Northeast rose one point to 57 while the Midwest's was unchanged at 65.  Both the West and South fell one point to 75 and 70, respectively.