Builder Confidence Hits Highest Level in 10 Years

by Peter Thomas Ricci

Builders are now more confident than at anytime since the housing boom


Builder confidence in the market for newly constructed single-family homes rose three points in October to a level of 64 on the National Association of Home Builders/Wells Fargo Housing Market Index (HMI). That is the highest level for the HMI since Oct. 2005.

David Crowe, the NAHB’s chief economist, said the continued strength of the HMI speaks to the market’s consistency.

“With October’s three-point uptick, builder confidence has been holding steady or increasing for five straight months. This upward momentum shows that our industry is strengthening at a gradual but consistent pace,” Crowe said. “With firm job creation, economic growth and the release of pent-up demand, we expect housing to keep moving forward as we start to close out 2015.”

NAHB Housing Market Index – Out of Sync?

Derived from a monthly survey that NAHB has been conducting for 30 years, the NAHB/Wells Fargo Housing Market 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.

Two of the three HMI components posted gains in October. The index measuring sales expectations in the next six months rose seven points to 75, and the component gauging current sales conditions increased three points to 70. Meanwhile, the index charting buyer traffic held steady at 47.

Looking at the three-month moving averages for regional HMI scores, all four regions posted gains. The West registered a five-point uptick to 69 while the Northeast, Midwest and South each rose one point to 47, 60 and 65, respectively.

Despite those strong numbers, Tom Woods, the NAHB’s chairman, said that areas of concern do remain for some builders.

“The fact that builder confidence has held in the 60s since June is proof that the single-family housing market is making lasting gains as more serious buyers come forward,” Woods said. “However, our members continue to tell us there are still pockets of softness in some markets across the nation, and that they face challenges regarding the availability of lots and labor.”

Indeed, we have reported in the past on the HMI’s unequal growth, as not all builders have been able to capitalize on the surging luxury sector in new construction. Our graph below shows how new construction has moved mostly sideways since 2010, while builder confidence has soared.

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