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Builder Confidence Once Again in Positive Territory

by Peter Thomas Ricci

After a sorrowful period in the woods, builder confidence has returned to the promised land this month.

The National Association of Home Builders/Wells Fargo Housing Market Index (HMI), the nation’s leading measurement on builder confidence in the single-family home marketplace, rose four points in July to 53, returning the index to its desired terrain.

Any index reading over 50 denotes that more builders see conditions as good than bad; though the HMI had been in such territory for eight straight months (starting in June 2013), the index took a dive in February, and has been below 50 until this month.

A Return to the Promised Land

The HMI is a monthly survey that the NAHB has conducted for 30 years, and it gauges homebuilder sentiment on a number of factors, with opinions ranging from “good,” to “fair,” to “poor,” and rate of traffic from “high to very high,” “average” or “low to very low.” Here were the index’s specific findings:

  • The index gauging current sales conditions increased four points to 57.
  • Meanwhile, the index measuring future sales rose six points to 64, and the index gauging the traffic of prospective buyers rose three points to 39.
  • Regionally, the index rose in all four areas; the HMI was up one point and two points in the Northeast (35) and Midwest (48), respectively, while it rose five points in the West (52) and two points in the South (51).

What Does the Future Hold?

Kevin Kelly, the NAHB’s current chairman, said that the sudden rise of the HMI bodes well for pent-up demand, that long-fabled aspect of housing that so many professionals are counting on in the coming months.

“This is the first time that builder confidence has been above 50 since January,” Kelly said. “[It’s] an important sign that it is strengthening as pent-up demand brings more buyers into the marketplace.”

Building on Kelly’s comments, David Crowe, the chief economist of the NAHB, said that the nation’s job market will ultimately decide the fate of new construction.

“An improving job market goes hand-in-hand with a rise in builder confidence,” Crowe said. “As employment increases and those with jobs feel more secure about their own economic situation, they are more likely to feel comfortable about buying a home.”

Stay tuned for tomorrow, when our coverage of construction continues with the Census Bureau’s new numbers on housing starts; perhaps the jump in Builder Confidence implies a positive Census Bureau report? We shall see!

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