Builder Confidence Back on Upswing

Builder confidence in the market for newly constructed single-family homes rose by two points in August, the National Association of Home Builders reported yesterday.

The NAHB/Wells Fargo Housing Market Index increased to 60 in August from a downwardly revised reading of 58 in July. Two of the three HMI components posted gains in August–the component gauging current sales conditions rose two points to 65, while the index charting sales expectations in the next six months increased one point to 67. The component measuring buyer traffic fell one point to 44.

Regionally, the South registered a two-point uptick to 63, the Northeast rose two points to 41 while the West was unchanged at 69. The Midwest dropped two points to 55. Regional indices run on a three-month moving average.

“Builder confidence remains solid in the aftermath of weak GDP reports that were offset by positive job growth in July,” said NAHB Chief Economist Robert Dietz. “Historically low mortgage rates, increased household formations and a firming labor market will help keep housing on an upward path during the rest of the year.”

NAHB Chairman Ed Brady added that new construction and new home sales are on the rise in most areas of the country, which is helping to boost builder sentiment.

“Gradual improvement in single-family construction and new home sales thus far in 2016 have kept builder confidence at a solid level despite relatively weak economic growth,” said Mark Vitner, senior economist with Wells Fargo Securities, Charlotte, N.C. “We continue to look for modest gains in new home sales and single-family construction in the year ahead.”

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.

Last week the Mortgage Bankers Association reported its Builder Application Survey for July showed mortgage applications for new home purchases fell by 8 percent from June but increased by 2.4 percent from a year ago. MBA Vice President of Research and Economics Lynn Fisher attributed the drop as part of the “normal seasonal pattern” for the time of year.