September Builder Confidence Falters

September Builder Confidence Falters

09/17/2013 BY: MARK LIEBERMAN, FIVE STAR INSTITUTE ECONOMIST

The Housing Market Index (HMI), a measure of builder confidence, stalled at 58 in September, unchanged from August’s downwardly revised reading, the National Association of Home Builders reported Tuesday.

The August confidence reading had originally been 59. Economists surveyed by Bloomberg had expected the index to remain at that level.

But a dip in one of the three index components – the outlook for new home sales six months out – pulled the index. It was the first time since May the index has not registered a month-month gain.

But while the national index was unchanged for September, the index reading for the Midwest rose to a record high 66 – the second consecutive record-setting month for that Census region. The reading for the South hit the highest level. 58, since March 2006. While NAHB’s national survey began in January 1985, the regional readings began in December 2004. The index for the West rose three points to 62, the highest it has been since May 2006. The index for the Northeast rose six points to 45, also the highest since May 2006.

The downward revision for August marked the second straight month in the index for a prior month was reduced. The July index was revised down to 56 from the originally reported 57.

The index consists of three components: a gauge of current new single family home sales, sales six month out and buyer traffic. The outlook for sales six months forward dipped three points in September to 65, its lowest level since June and the first decline in any of the components since April.

The outlook for current sales was unchanged in September at 62 and buyer traffic rose one point to 47.

The overall index is up18 points from September 2012, the 27th month of year-year improvement. The outlook for current sales is up 20 points in the last year, for future sales up 14 points and buyer traffic up 17 points.

The survey comes as new single family home sales and prices of those homes have been stalling. In the most recent report from the Census Bureau and the Department of Housing and Urban Development, new single family home sales – contracts – were down 13.4 percent in one month and the median price of a new single family home fell for the third straight month. The pace of new home sales has dropped in three of the last five months.

Homebuyers have reacted to higher mortgage interest rates and generally higher prices for existing single family homes. Buying activity has also been constrained by weak job and personal income growth.

Permits for new single family construction and single family starts also fell in the most recent Census-HUD report though multi-family activity improved.

Census and HUD will report on August new home sales on September 25 and will report August housing permits and starts Wednesday.

The HMI, 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.

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