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Builder confidence points to strong construction in 2016

by Peter Thomas Ricci

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Builder confidence in the market for newly-built single-family homes remained unchanged in May at a level of 58 on the National Association of Home Builders/Wells Fargo Housing Market Index (HMI).

Ed Brady, the NAHB’s chairman, explained in the association’s report that the index’s current level bodes well for housing, although challenges remain.

“Builder confidence has held steady at 58 for four straight months, which indicates that the single-family housing sector remains in positive territory,” Brady said. “However, builders are facing an increasing number of regulations and lot supply constraints.”

Sales Expectations High, Buyer Traffic Low

As with past months, there was a bit of a contradiction at the heart of builder confidence – while the HMI components measuring sales expectations in the next six months increased three points to 65, the component  gauging buyer traffic remained low at 44 (any measure lower than 50 indicates that more builders see the market as bad than good); meanwhile, the component charting current sales conditions was unchanged at 63.

NAHB Chief Economist Robert Dietz said that economic trends are behind the rise in sales expectations.

“The fact that future sales expectations rose slightly this month shows that builders are confident that the market will continue to strengthen,” Dietz said. “Job creation, low mortgage interest rates and pent-up demand will also spur growth in the single-family housing sector moving forward.”

Looking at the three-month moving averages for regional HMI scores, the South and Midwest both registered one-point gains to 59 and 58, respectively. The West remained unchanged at 67, and the Northeast fell three points to 41.

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