May Uptick in Builder Confidence Proves Fleeting

The National Association of Home Builders' (NAHB's) measure of builder confidence broke out of its multi-month slump in May, rising 3 points.  Much of that gain was reversed this month as the NAHB/Wells Fargo Housing Market Index (HMI) dropped by 2 points to 64, returning to the low- to-mid-60s range it has occupied since the first of the year.

"While demand for single-family homes remains sound, builders continue to report rising development and construction costs, with some additional concerns over trade issues," said NAHB Chairman Greg Ugalde.

"Despite lower mortgage rates, home prices remain somewhat high relative to incomes, which is particularly challenging for entry-level buyers," said NAHB Chief Economist Robert Dietz. "And while new home sales picked up in March and April, builders continue to grapple with excessive regulations, a shortage of lots and lack of skilled labor that are hurting affordability and depressing supply."

The HMI is derived from a survey that NAHB has been conducting for 30 years among NAHB's new home builder members.  Each month they are asked to gauge their perceptions of current single-family home sales as "good," "fair" or "poor." Using the same scale, they also describe their expectations for those sales over the next six months. They are also asked 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.

All three component indices were slightly lower in June. The index measuring current sales conditions fell one point to 71 while the expectations component dipped 2 points to 70.   The metric charting buyer traffic, which has only rarely crossed the 50-point benchmark since well before the housing crisis, dropped one point to 48.

Regional averages are presented as three-month moving averages.  The Northeast and the Midwest each posted a 3-point gain to 60 and 57 respectively. The West held steady at 71 and the South fell a single point to 67.