Builder Confidence at Seven-Year High

Since January of 2006, the National Association of Home Builders/Wells Fargo Housing Market Index (HMI) has released its strongest reading in Builder Confidence.

For the month of July, builder confidence in the market for newly build, single-family homes rose six points to 57, making it the index’s third consecutive monthly gain this year.

Builder Confidence

“Today’s report is particularly encouraging in that it shows improvement in builder confidence across every region as well as solid gains in current sales conditions, traffic of prospective buyers and sales expectations for the next six months,” proclaimed NAHB Chairman Rick Judson, a home builder from Charlotte, N.C. NAHB Chief Economist, David Crowe, also noted that “Builders are seeing more motivated buyers coming through their doors as the inventory of existing homes for sale continues to tighten. Meanwhile, as the infrastructure that supplies home building returns, some previously skyrocketing building material costs have begun to soften.”

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 from 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 June, the National Association of Home Builders released that a widely followed measure of homebuilder sentiment jumped to a seven-year high. For the first time in seven years, an index that measures sentiment about home building was above 50. It had jumped to 52 in June from 44 in May and well above the consensus estimate of 45.

The index hasn't been that high since April 2006, just before the housing market collapsed. Not only that, but it was the biggest one-month jump in the index since 2002. A reading above 50 in the NAHB/Wells Fargo index indicates more builders view sales conditions as good, rather than poor. Measures of customer traffic, current sales conditions and builders' outlook for single-family home sales over the next six months also soared to their highest levels in seven years.

David Crowe adds, "Builders are experiencing some relief in the headwinds that are holding back a more robust recovery.”

The housing recovery is looking more sustainable and should continue to boost economic growth this year, offsetting some of the drag from higher taxes and federal spending cuts.

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