NAHB Reports: Builder Confidence Rises in March

After four consecutive months hovering at the same low level, builder confidence in the market for newly built, single-family homes improved by a single point in March, rising to 17 on the National Association of Home Builders/Wells Fargo Housing Market Index (HMI). This is the highest level the HMI has reached since May 2010, when the survey period corresponded with the final days of the federal home buyer tax credit program. "Builders are cautiously looking forward to the spring home buying season in hopes that improving economic conditions will help bring more buyers to the table," said NAHB Chairman Bob Nielsen, a home builder from Reno, Nev. "However, the same factors that have been weighing down the market are still very much in play, particularly competition from short sales and foreclosures, consumers' inability to sell their existing home, appraisals that are coming in below construction cost due to the inappropriate use of distressed properties as comps, and restrictive lending conditions for both buyers and builders." Derived from a monthly survey that NAHB has been conducting for more than 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 "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 from 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. "While many homebuyers are still holding off on making a purchase, builders did indicate slightly increased optimism about the future with a two-point gain in the HMI component gauging sales expectations for the next six months," added NAHB Chief Economist David Crowe. "In fact, prevailing indicators portend some improvement in the overall economy, which should generate modest housing market gains later this year. Unfortunately, most small builders report that they are no more able to obtain credit for new construction today than they have been in the past year, and this is a major impediment that is keeping them from putting their crews back to work." Two out of three of the HMI's component indexes held unchanged in March, including the component gauging current sales conditions (holding at 17) and the component gauging traffic of prospective buyers (holding at 12). Meanwhile, the component gauging sales expectations in the next six months rose two points in March to 27, its highest level since May 2010. Regionally, HMI results were mixed in March. While the Northeast posted a one-point decline to 20, the Midwest held flat at 12, the South gained two points to 20 and the West gained four points to 17.