Tuesday, October 18, 2011

NAHB Builder Confidence index increases in October

by Bill McBride on 10/18/2011 10:00:00 AM

The National Association of Home Builders (NAHB) reports the housing market index (HMI) increased in October to 18 from 14 in September. Any number under 50 indicates that more builders view sales conditions as poor than good.

From the NAHB: Home Builder Confidence Rises Four Points in October

Builder confidence in the market for newly built, single-family homes rose four points to 18 on the National Association of Home Builders/Wells Fargo Housing Market Index (HMI) for October, which was released today. This is the largest one-month gain the index has seen since the home buyer tax credit program helped spur the market in April of 2010.

"Builder confidence regained some ground in October due to modest improvements in buyer interest in select markets where economic recovery is starting to take hold and where foreclosure activity has remained comparatively subdued," said NAHB Chairman Bob Nielsen, a home builder from Reno, Nev.
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"This latest boost in builder confidence is a good sign that some pockets of recovery are starting to emerge across the country as extremely favorable interest rates and prices catch consumers' attention," said NAHB Chief Economist David Crowe. "However, it's worth noting that while some builders have shifted their assessment of market conditions from 'poor' to 'fair,' relatively few have shifted their assessments from 'fair' to 'good.' One reason is that builders are facing downward pricing pressures from foreclosed homes at the same time that building materials costs are rising, and this is further squeezing already tight margins."
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Each of the HMI's three component indexes recorded substantial gains in October. The component gauging current sales conditions rose four points to 18, the component gauging sales expectations in the next six months rose seven points to 24, and the component gauging traffic of prospective buyers rose three points to 14.

Regionally, the West led all other areas of the country with its nine-point gain to 21 – the highest HMI score for that region since August of 2007. The Midwest and South each recorded four-point gains, to 15 and 19, respectively, while the Northeast held unchanged at 15.
HMI and Starts Correlation Click on graph for larger image in new window.

This graph compares the NAHB HMI (left scale) with single family housing starts (right scale). This includes the October release for the HMI and the August data for starts (September housing starts will be released tomorrow).

Both confidence and housing starts have been moving sideways at a very depressed level for several years. This is still very low, but this is the highest level since early 2010 - and that boost was due to the housing tax credit.