Builder confidence reaches 9-year high

The National Association of Home Builders/Wells Fargo Housing Market Index (HMI) pointed to a significant milestone for builder confidence, which reached its highest level since November 2005 this month.

Confidence in the market for new, single-family homes reached 59 in September, a four-point gain since August.

[The news followed shortly after the Commerce Department reported August housing starts fell sharply from the prior month.]

 “Since early summer, builders in many markets across the nation have been reporting that buyer interest and traffic have picked up, which is a positive sign that the housing market is moving in the right direction,” said NAHB chairman Kevin Kelly.

September's gains occurred in all three components of the HMI, including sentiment toward current sales conditions, traffic of prospective buyers and expectations for future sales.

The gains also occurred unilaterally in every region of the country. Most of the progress occurred in the Midwest, which gained an average of five points per month over the past three months.

NAHB chief economist David Crowe expressed a slightly more cautionary optimism toward the market improvement, however.

“While a firming job market is helping to unleash pent-up demand for new homes and contributing to a gradual, upward trend in builder confidence, we are still not seeing much activity from first-time home buyers,” said Crowe. “Other factors impeding the pace of the housing recovery include persistently tight credit conditions for consumers and rising costs for materials, lots and labor.”

The HMI takes the temperature of builder sentiment by asking them to rate sales expectations for the next six months as "good," "fair" or "poor." They also rate traffic of prospective buyers as "high to very high," "average" or "low to very low." A score of over 50 on the index suggests most builders have a positive view of the market.