Falling Lumber Costs Push Builder Confidence Higher

Builder confidence ticked up 1 point in October, rising to 68. The National Association of Home Builders (NAHB), which produces the NAHB/Wells Fargo Housing Market Index (HMI) says this measure of confidence levels has held in the high 60s since June.

"Builders are motivated by solid housing demand, fueled by a growing economy and a generational low for unemployment," said NAHB Chairman Randy Noel. "Builders are also relieved that lumber prices have declined for three straight months from elevated levels earlier this summer, but they need to manage supply-side costs to keep home prices affordable."

The index is derived from a monthly survey that NAHB has been conducting among its new home building members for 30 years. Respondents are asked to give their perceptions of the current market for single-family home sales, and what they expect of the market over the next six months, choosing responses of  "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.

The HMI index measuring current sales conditions rose 1 point to 74 and the component gauging expectations in the next six months increased a single point to 75. Meanwhile, the metric charting buyer traffic registered a 4-point uptick to 53.

Regional scores are given on a three-month moving average. The score for the Northeast was up 3 points to 57 and the South edged higher by 1 point to 71. The West held steady at 74 and the Midwest fell 2 points to 57.

"Favorable economic conditions and demographic tailwinds should continue to support demand, but housing affordability has become a challenge due to ongoing price and interest rate increases," said NAHB Chief Economist Robert Dietz. "Unless housing affordability stabilizes, the market risks losing additional momentum as we head into 2019."