Builder Confidence Remains Strong

August 15, 2005

Builder confidence in the market for new single-family homes edged down somewhat in August but remained well within the elevated range that has characterized the past 17 months, according to the latest National Association of Home Builders/Wells Fargo Housing Market Index (HMI), which was released today.

“The August HMI of 67, which is down three points from July, as well as from August of last year, indicates that builders still remain upbeat and confident in the housing market,” said NAHB President Dave Wilson, a custom home builder from Ketchum, Idaho. “Demand for new homes is still strong, and even though mortgage interest rates have edged up in recent weeks, they are still very affordable, with the average rate for a 30-year, fixed-rate loan hovering around 5.9 percent.”

“The August HMI is consistent with the ratings that we have seen thus far this year, and builder attitudes suggest that new home sales and starts will continue to be brisk in the coming months,” said David Seiders, NAHB’s chief economist. “However, builders are concerned about the high cost of land and shortages of lots for home building, particularly in the West and in parts of the South and the Northeast. In the Midwest, builders are concerned about local economic conditions and job losses, particularly in the auto industry, and that is reflected in the confidence measures for that region of the country.”

Derived from a monthly survey that NAHB has been conducting for approximately 20 years, the NAHB/Wells Fargo Housing Market Index gauges builder perceptions of current single-family home sales and sales expectations for the next six months as either “good,” “fair” or “poor.”

Builders are also asked to rate traffic of prospective buyers as either “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 sales conditions as good than poor.

The August HMI reflects a four point decline – from 76 to 72 – in the component that measures current sales activity. The component that measures builder expectations for sales over the next six months was unchanged at 77, and the component that measures traffic of prospective buyers declined five points from 55 to 50.

Builder confidence measures declined slightly in three of the four regions of the country. Only the Northeast, with a rise from 69 to 71, showed an increase. In the Midwest, the confidence gauge declined from an upwardly revised 48 to 45, and in the West it dropped from 88 to 85. The South registered a slight decline from a downwardly revised 74 in July to 73 in August.

Source: NAHB

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