Builder Confidence Shows First 2013 Gain

Builder Confidence Shows First 2013 Gain

BY: MARK LIEBERMAN, FIVE STAR INSTITUTE ECONOMIST

Despite still sluggish new home sales, builder confidence improved in May for the first time since December, the National Association of Home Builders (NAHB) reported Wednesday.

NAHB’s Housing Market Index (HMI) rose three points to 44, matching economist expectations. The April HMI was revised down to 41 from the originally reported 42.

All three components of the HMI improved in May. The reading on current home sales increased four points to 48 from 44 (revised from the initially reported 45), the outlook for sales in the next six months rose to 53 from 52 (revised down from April’s reading of 53), and the measure of buyer traffic rose to 33 from April’s unrevised 30.

The index, built based on surveys conducted jointly by the NAHB and Wells Fargo, 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 traffic of prospective buyers as “high to very high,” “average,” or “low to very low.” Scores from each component are then used to calculate a seasonally adjusted index where any number over 50 indicates that more builders view sales conditions as good than poor.

The last time all three index components improved in the same month was last July.

The improvement in the index followed the most recent Census Bureau/HUD report on new home sales, which showed a scant uptick in sales—from 411,000 to 417,000—and a drop in both the median and average price of a new home.

Builders, however, seemed to shrug off the sales data.

“Builders are noting an increased sense of urgency among potential buyers as a result of thinning inventories of homes for sale, continuing affordable mortgage rates and strengthening local economies,” according to NAHB chairman Rick Judson. “This is definitely an encouraging sign even amidst rising challenges with regard to the cost and availability of building materials, lots and labor.”

The inventory of new homes for sale in March—the most recent data reported by Census and HUD—was 153,000, the highest level since November 2011. The months’ supply of homes for sale in March, calculated using the inventory and the monthly sales pace, was 4.4, matching February.

The increase in the outlook for sales over the next six months (which has remained in a narrow range since last September) brought that measure to its highest level since February 2007. The outlook is the only component of the HMI was has been above 50—the tipping point between a positive and negative market view—for most of the last six months. Despite that confidence, though, sales continue to flounder.

The increase in the current market assessment was the first since January, adding back half of the eight points that component lost over the last few months.

The increase in the buyer traffic measure was the strongest since last October, when it rose five points to 35.

Builder confidence improved in three of the four Census regions, falling only in the West, where it dropped to 41 from April’s 52. The index was up 10 points in the Northeast to 51 (fueled in part by rebuilding from Superstorm Sandy), up five points in the Midwest to 45, and four points in the South to 44.

With the May report, the total index remained below 50 for the 85th straight month. The last time the HMI was above 50 was April 2006, when the reading was 51 and falling.

The improvement in the current sales should be reflected in the government’s new homes sales report (to be issued on May 23) and in the report on housing permits and starts out Thursday.

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