Builder Confidence Solidifies on Strong May Reading

Builder confidence in the market for newly built single-family homes rose two points in May, while future sales sentiment hit a 12-year high, the National Association of Home Builders reported yesterday.

The NAHB/Wells Fargo Housing Market Index rose by two points in May to 70, the second-highest HMI reading since the downturn. Two of the three HMI components registered gains in May. The index charting sales expectations in the next six months jumped four points to 79 while the index gauging current sales conditions increased two points to 76. Meanwhile, the component measuring buyer traffic edged one point down to 51.

Three-month moving averages posted gains in three of four regions. The Northeast and South each registered three-point gains to 49 and 71, respectively, while the West rose one point to 78. The Midwest was unchanged at 68.

“Builders’ optimism in the housing market is solidifying, even as they deal with higher building material costs and shortages of lots and labor,” said NAHB Chairman Granger MacDonald.

The Index gauges builder 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.

Mark Vitner, senior economist with Wells Fargo Securities, Charlotte, N.C. said the spring home buying season signals “all systems go” for home building.

“With weather distortions now comfortably behind us, the strength we are seeing in home buying reflects a real fundamental improvement in housing demand,” Vitner said. “Demand for single-family homes is being driven by stronger job growth and a rising supply of millennial buyers.”

These conditions should bode well for home builders going forward, said NAHB Chief Economist Robert Dietz. “Especially as existing home inventory remains tight, we can expect increased demand for new construction moving forward,” he said.

On Monday, the Mortgage Bankers Association reported mortgage applications for new homes fell for the first time this year in April from March and from a year ago. The MBA Builder Applications Survey, which tracks application volume from mortgage subsidiaries of home builders across the country, said April showed mortgage applications for new home purchases decreased by 4.3 percent from a year ago. From March, applications fell by 20 percent.

MBA Vice President of Research and Economics Lynn Fisher noted a relatively strong March could have pulled forward some applications from April, exacerbating the normal seasonal fall-off. She noted on net, year to date applications for new homes are running 3 percent from a year ago.

MBA estimated new single-family home sales at a seasonally adjusted annual rate of 517,000 units in April, a decrease of 22.8 percent from the March pace of 670,000 units. On an unadjusted basis, MBA estimated 50,000 new home sales in April, a decrease of 19.4 percent from 62,000 new home sales in March.