Builder Confidence Posts Highest Monthly Gain in 19 Months

by Houston Agent

Builder confidence rose to the highest levels since early 2010 in the new HMI.

The National Association of Home Builders/Wells Fargo Housing Market Index (HMI) rose to 18, an increase of four points from September to October, the highest monthly gain in 19 months.

According to the National Association of Home Builders (NAHB), it is the largest increase since the home buyer tax credit program boosted the housing market in April of 2010.

Bob Nielsen, the NAHB chairman, said that specific markets propelled the index, though it still remains relatively low.

“Builder confidence regained some ground in October due to modest improvements in buyer interest in select markets where economic recovery is starting to take hold and where foreclosure activity has remained comparatively subdued,” Nielsen said. “That said, confidence remains quite low.”

An index level of 50 is meant to signify strong confidence in the market.

Regionally, the West gained nine points for the month, jumping to 21 and leading the country in confidence (that 21 is also the highest HMI score for that region since August of 2007). Elsewhere, the Midwest and South both recorded four-point gains, to 15 and 19, respectively, while the Northeast held unchanged at 15.

The results of the HMI are based on a monthly survey the NAHB has been offering builders for more 20 years. Two sets of questions are included in the survey: the first asks builders if their perceptions of single-family home sales and sales expectations are  “good,” “fair,” or “poor,” while the second asks builders to rate buyer traffic as “high to very high,” “average,” or “low to very low.”

David Crowe, the NAHB’s chief economist, offered some perspective on the survey results, emphasizing the particular sways in builder opinions.

“This latest boost in builder confidence is a good sign that some pockets of recovery are starting to emerge across the country as extremely favorable interest rates and prices catch consumers’ attention,” Crowe said.

“However, it’s worth noting that while some builders have shifted their assessment of market conditions from ‘poor’ to ‘fair,’ relatively few have shifted their assessments from ‘fair’ to ‘good,'” Crowe said. “One reason is that builders are facing downward pricing pressures from foreclosed homes at the same time that building materials costs are rising, and this is further squeezing already tight margins.”

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