Builder confidence gains ground in October

Builder sentiment climbed in October while overcoming rising material prices and shortages, the National Association of Home Builders reported.

The latest NAHB/Wells Fargo Housing Market Index, measuring builder confidence in the market for new single-family homes, increased 4 points to 80 this month.

The NAHB also notes that builders are getting increasingly concerned about affordability hurdles ahead for most buyers. Consumer demand remains strong, however, helping to raise up builder confidence.

As building material price increases and supply chain issues continue, interest rates are expected to rise in the coming months as the Fed begins to taper its purchase of U.S. Treasuries and mortgage-backed debt. The NAHB said that policymakers must focus on fixing the broken supply chain. The will spur more construction and help ease upward pressure on home prices.

The HMI is derived from a monthly survey conducted by the NAHB. The index 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 for each component are then used to calculate a seasonally adjusted index where any number over 50 indicates that more builders view conditions as good than poor.

The NAHB reports three major HMI indices posted gains in October. 

The index gauging current sales conditions rose five points to 87, the component measuring sales expectations in the next six months posted a three-point gain to 84, and the gauge charting traffic of prospective buyers moved four points higher to 65.

Looking at the three-month moving averages for regional HMI scores, the Midwest rose one point to 69, the Northeast held steady at 72, the South and West each remained unchanged at 80 and 83, respectively.

The latest HMI tables can be found at nahb.org/hmi.