For the third consecutive month, builder confidence in the market for newly built, single-family homes has risen. With its highest reading since January of 2006, the score rose six points to 57 on the National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index (HMI) for the month of July.
“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,” noted NAHB Chairman Rick Judson, a home builder from Charlotte, N.C. However, he cautioned that “this positive momentum could be disrupted by threats on the policy side, particularly with regard to the mortgage interest deduction and federal support for the housing finance system.”
The HMI gauges builder perceptions of current single-family home sales and sales expectations for the next six months as “good,” “fair” or “poor” during a monthly survey conducted by the NAHB. The survey also asks builders to rate the traffic of prospective buyers as “high to very high,” “average” or “low to very low.” Scores from each component of the survey are then used to calculate a seasonally adjusted index where any number over 50 indicates that more builders view conditions as good than poor.
July saw all three HMI components post gains. The component gauging current sales conditions rose five points to 60, which is its highest level since early 2006. The component gauging traffic of prospective buyers rose five points to 45 and the component gauging sales expectations in the next six months gained seven points to 67, marking the strongest readings for each since late 2005.
“Builders are seeing more motivated buyers coming through their doors as the inventory of existing homes for sale continues to tighten,” noted NAHB Chief Economist David Crowe. “Meanwhile, as the infrastructure that supplies home building returns, some previously skyrocketing building material costs have begun to soften.”
All four regions nationwide also showed gains in their HMI scores’ three-month moving averages. The Northeast showed a four-point gain to 40, the South posted a five-point gain to 50 and the West measured a three-point gain to 51. The Midwest region, which includes Chicago, rose the most over this period with an eight-point gain and posted the highest overall score of 54. This increase in builder confidence is a great sign for the Chicago real estate market, as well as other markets across the country.