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Home Builder Index Hits 5-Year High

Thursday, August 16, 2012

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Builder confidence in the market for newly built, single-family homes is better than it has been in more than five years.

August marked the fourth consecutive month of improved numbers, with a two-point gain to 37, according to the National Association of Home Builders/ Wells Fargo Housing Market Index (HMI).

Builder confidence has reached a five-year high, according to the latest NAHB index.

The gain builds on a six-point increase in July and brings the index to its highest level since February 2007, NAHB reported.

Yet, the numbers are still a far cry from 50, a reading that would mean that more builders view conditions as good rather than poor. The index has not broached that territory since April 2006.

Inching to 50

Still, NAHB said the four straight positive months of builder confidence provides further evidence of gradual strengthening in many housing markets and provides a needed boost to local economies.

“However, we are still at a very fragile stage of this process, and builders continue to express frustration regarding the inventory of distressed properties, inaccurate appraisal values, and the difficulty of accessing credit for both building and buying homes,” said David Crowe, NAHB chief economist.

Derived from a monthly survey that NAHB has been conducting for 25 years, the HMI gauges builder perceptions of current single-family home sales and sales expectations for the next six months as “good,” “fair” or “poor.”

Also, the survey asks builders to rate traffic of prospective buyers as “high to very high,” “average” or “low to very low.”

August Survey: By the Numbers

Every HMI component posted gains in August, NAHB reported.

The components gauging current sales conditions and traffic by prospective buyers each rose three points, to 39 and 31, respectively, while the component gauging sales expectations in the next six months inched up one point to 44. All were at their highest levels in more than five years, NAHB said.

Regionally, builder confidence in August rose nine points to 42 in the Midwest and two points to 35 in the South. However, it also declined nine points to 25 in the Northeast and three points to 40 in the West.

For the August HMI release, NAHB introduced an alternative trend comparison of regional HMIs by also showing a three-month moving average of each region’s index. The current three-month moving averages show a two-point decline to 29 in the Northeast, a five-point gain to 35 in the Midwest, a three-point gain to 32 in the South, and a three-point gain to 38 in the West.

Starts Down, Permits Up

Despite the roll of builder confidence, U.S. housing starts edged down 1.1% in July, according to U.S. Census Bureau and Department of Housing and Urban Development figures released Thursday (Aug. 16).

However, builders pulled more permits for planned new-home projects than they have in any month since August 2008, NAHB said.

“While many builders believe that the outlook for housing is considerably brighter than it has been in years, we are being very careful about keeping inventories tight and not building ahead of demand,” noted Barry Rutenberg, chairman of the NAHB and a home builder from Gainesville, FL.

“At the same time, builders are drawing more permits for new construction so we can accommodate buyers and renters as they return to the marketplace.”

National Numbers

After four consecutive months of gains, single-family housing starts fell back 6.5% to a seasonally adjusted annual rate of 502,000 units in July. Meanwhile, multifamily starts posted a 12.4% gain to 244,000 units, the strongest pace since February.

On a regional basis, combined single- and multifamily starts declined 1.3% in the Northeast, 3.5% in the South and 5.3% in the West, but rose 17% in the Midwest in July.

Issuance of new building permits, which can be an indicator of future building activity, rose 6.8% to a seasonally adjusted annual rate of 812,000 units in July—the fastest pace in nearly four years. Single-family permits rose 4.5% to 513,000 units (their best pace since March of 2010) while multifamily permits rose 11.2% to 299,000 units.

Permit issuance rose in three out of four regions in July, with the Northeast registering a 12.2% gain, the South a 5.8% gain and the West a 14.0% gain. The Midwest posted a 4.2% decline.