Builder confidence shows gains

Builder sentiment posted modest gains in May in a sign that the housing market is moving forward again after strong disruptions from the COVID-19 crisis.

The latest National Association of Home Builders/Wells Fargo Housing Market Index (HMI) increased 7 points to 37 for May. The index measures builder confidence for newly-single family homes.

This increase follows last month’s steep decrease, which was the largest decline in the history of the index.

According to the NAHB, home construction being provided with an essential business designation in most states during the crisis helped push up confidence.

Additionally, low interest rates have pushed housing demand with mortgage applications posting four straight weeks of gains.

“The fact that most states classified housing as an essential business during this crisis helped to keep many residential construction workers on the job, and this is reflected in our latest builder survey,” said NAHB Chairman Dean Mon. “At the same time, builders are showing flexibility in this new business environment by making sure buyers have the knowledge and access to the homes they are seeking through innovative measures such as social media, virtual tours and online closings.”

The HMI is derived from a monthly survey that 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 HMI index gauging current sales conditions increased six points to 42, the component measuring sales expectations in the next six months jumped 10 points to 46 and the measure charting traffic of prospective buyers rose eight points to 21.

“Low interest rates are helping to sustain demand,” said NAHB Chief Economist Robert Dietz. “As many states and localities across the nation lift stay-at-home orders and more furloughed workers return to their jobs, we expect this demand will strengthen. Other indicators that suggest a housing rebound include mortgage application data that has posted four weeks of gains and signs that buyer traffic has improved in housing markets in recent weeks. However, high unemployment and supply-side challenges including builder loan access and building material availability are near-term limiting factors.”

By region, the Midwest increased 7 points to 32, the South rose 8 points to 42 and the West posted a 12-point gain to 44. The Northeast fell 2 points to 17, however.

Prior to April’s plummet, the HMI declined just 2 points to 72 in March and fell just 1 point to 74 in February. Both measurements were deemed as builder sentiment standing on very solid ground.