Builders See Market Improvements

New home builders finally got a little wind under their wings this month.  The National Association of Home Builders (NAHB) said its NAHB/Wells Fargo Housing Market Index (HMI), a measure of builder confidence in the new home market, finally broke out of the low 60s where it has nested since the first of the year. The overall index rose 3 points to 66 in May, its highest level since October of last year.

"Builders are busy catching up after a wet winter, and many characterize sales as solid, driven by improved demand and ongoing low overall supply," said NAHB Chairman Greg Ugalde. "However, affordability challenges persist and remain a big impediment to stronger sales."

"Mortgage rates are hovering just above 4% following a challenging fourth quarter of 2018 when they peaked near 5%. This lower interest rate environment, along with ongoing job growth and rising wages, is contributing to a gradual improvement in the marketplace," said NAHB Chief Economist Robert Dietz.  "At the same time, builders continue to deal with ongoing labor and lot shortages and rising material costs that are holding back supply and harming affordability."

The index is derived from a monthly survey where NAHB asks its new home builder members to relay their perceptions of current single-family home sales and sales 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 confidence rose across the board. The index measuring current sales conditions rose 3 points and the one looking forward to the next six months ticked up 1 point, both scoring levels of 72. The metric charting buyer traffic, which has only rarely broken through 50 since before the housing crisis, moved up two points to 49.

Regional results are posted as three-month moving averages.  The Northeast posted a 6-point gain to 57, the West was up 2 points to 71, the Midwest and the South each rose a single point to 54 and 68 respectively.