Builder Confidence is Steady

The National Association of Home Builders (NAHB) said its Housing Market Index (HMI), which it produces in cooperation with Wells Fargo, barely budged again in July.  The index eased back one point to 59, having remained in a range of 58 to 61 since last December.

The HMI is derived from new-home builder responses to a survey the builders’ association has been conducting for 30 years.  Builders are asked for their perceptions of both current single-family home sales and sales expectations for the next six months as “good,” “fair” or “poor.” 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.  The highest level the index for the HMI in over 10 years was 65 last October.

“For the past six months, builder confidence has remained in a relatively narrow positive range that is consistent with the ongoing gradual housing recovery that is underway,” said NAHB Chairman Ed Brady. “However, we are still hearing reports from our members of scattered softness in some markets, due largely to regulatory constraints and shortages of lots and labor.”

All three HMI components edged lower in July. The components measuring current sales expectations and buyer traffic each fell one point to 63 and 45, respectively. The index measuring sales expectations in the next six months posted a three-point decline to 66.

“The economic fundamentals are in place for continued slow, steady growth in the housing market,” said NAHB Chief Economist Robert Dietz. “Job creation is solid, mortgage rates are at historic lows and household formations are rising. These factors should help to bring more buyers into the market as the year progresses.”

NAHB said the three-month moving averages for regional HMI scores also held remarkably steady. The Northeast, Midwest and South were unchanged at 39, 57 and 61, respectively. The West edged one point higher to 69.