August Finds Homebuilder Confidence Riding High

According to the National Association of Home Builders/Wells Fargo Housing Market Index, confidence in the national homebuilder market is decidedly up, marking August as the third consecutive month for gain in the index. August brought the average two points higher to 55, which is the highest level since January. Index ratings of 50 or higher indicate good conditions in the housing market.

The NAHB compiles the index from a monthly survey, which generates a confidence score from 1 to 100. Optimism regarding sales growth in the next six months measured 65, with the confidence in current sales sitting at 58.

Reasons for the uptick include continuing low interest rates, lower than expected home prices in most of the nation’s markets, and an improving job market. David Crowe, NAHB’s Chief Economist, says that “each of the three components of the HMI registered consecutive gains for the past three months, which is a positive sign that builder confidence appears to be firming following an uneven spring,” and that “Factors contributing to this rise include sustained job growth, historically low mortgage rates and affordable home prices, which are helping to unleash pent-up demand.”

Each of the NAHB’s regions saw gains in the index, with the Midwest showing a seven-point increase to 55, the West increasing four points to 56, and the South gaining a point to 52. The Northeast gained two points but still ranked last at 38.

NAHB Chair Kevin Kelly says that, “as the employment picture brightens, builders are seeing a noticeable increase in the number of serious buyers entering the market,” although he is quick to add that “builders still face a number of challenges, including tight credit conditions for borrowers and shortages of finished lots and labor.”

The steady increase in homebuilder confidence is welcome news. The second half of 2013 brought a housing slowdown, which was exacerbated by the building delays caused by winter weather. This slowdown was also worsened by the shortage of lots and lack of skilled labor combined with rising materials costs. This led to a low housing inventory and high house prices, which along with a mortgage rate spike further discouraged new home buyers.

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