Home builder sentiment gets a boost

home builder on frame of house

Home builders are feeling good about the new homes market in 2019.

Builders in the newly-built, single-family housing market gained four points to a level of 62 in February, according to the latest data from the National Association of Home Builders/Wells Fargo Housing Market Index (HMI). The HMI was released today during the 75th annual International Builders’ Show in Las Vegas.

“Ongoing reduction in mortgage rates in recent weeks coupled with continued strength in the job market are helping to fuel builder sentiment,” said NAHB Chairman Randy Noel, a custom home builder from LaPlace, La. “In the aftermath of the fall slowdown, many builders are reporting positive expectations for the spring selling season.”

February marked the second month in a row in which all the HMI indices posted positive gains. There are three main indices or components to the HMI: current sales conditions, expectations for sales in the next six months and buyer traffic. For the index measuring current sales conditions, the HMI posted a three-point gain to 67. The index measuring expectations for the next six months increased five points to 68. The metric gauging buyer traffic increased four points to 48.

“Builder confidence levels moved up in tandem with growing consumer confidence and falling interest rates,” said NAHB Chief Economist Robert Dietz. “The five-point jump on the six-month sales expectations for the HMI is due to mortgage interest rates dropping from about 5 percent in November to 4.4 percent this week. However, affordability remains a critical issue. Rising costs stemming from excessive regulations, a dearth of buildable lots, a persistent labor shortage and tariffs on lumber and other key building materials continue to make it increasingly difficult to produce housing at affordable price points.”

About the HMI

For 30 years, the NAHB has been conducting a monthly survey of home builders across the United States to help gauge their perception and confidence in the market. The results of these surveys are compiled into the NAHB/Wells Fargo Housing Market Index (HMI) and are then evaluated based on the builders’ sentiment regarding the three key components, mentioned above.

The HMI 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 buyer traffic of prospective buyers as “high to very high,” “average” or “low to very low.” Each component is then scored and those scores are used to calculate a seasonally adjusted index where any number higher than 50 indicates that more builders view conditions as good than poor.

When looking at the latest figures, we can see that two of the three major components of the HMI posted readings above 50. The index measuring prospective buyer traffic was the only component that scored below 50, but at 48, it’s not far beyond the threshold.

Regional Scores

According to the data from the HMI, the three-month moving averages for the index’s regional scores showed the South posting a one-point gain to 63 while the Northeast fell two points to 43. The Midwest and West both were unchanged at 52 and 67, respectively.

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