Builder confidence in the market for newly built, single-family homes continued to climb for a fourth consecutive month in January, rising four points to 25 on the latest National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index (HMI). This is the highest level the index has attained since June of 2007.
"Builder confidence has now risen four months in a row, with the latest uptick being universally represented across every index component and region," said Bob Nielsen, chairman of the NAHB and a home builder from Reno, Nev. "This good news comes on the heels of several months of gains in single-family housing starts and sales, and is yet another indication of the gradual but steady improvement that is beginning to take hold in an increasing number of housing markets nationwide—and that has been shown by our Improving Markets Index. Policymakers must now take every precaution to avoid derailing this nascent recovery."
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 conditions as good than poor.
Each of the HMI's three component indexes registered a fourth consecutive month of improvement in January. The component gauging current sales conditions rose three points to 25, which was its highest point since June of 2007. The component gauging sales expectations in the next six months also rose three points, to 29—its highest point since September 2009. And the component gauging traffic of prospective buyers rose three points to 21, its highest point since June of 2007.
The HMI also posted gains in all four regions in January, including a nine-point gain to 23 in the Northeast, a one-point gain to 24 in the Midwest, a two-point gain to 27 in the South and a five-point gain to 21 in the West.
"Builders are seeing greater interest among potential buyers as employment and consumer confidence slowly improve in a growing number of markets, and this has helped to move the confidence gauge up from near-historic lows in the first half of 2011," said NAHB Chief Economist David Crowe. "That said, caution remains the word of the day as many builders continue to voice concerns about potential clients being unable to qualify for an affordable mortgage, appraisals coming through below construction cost, and the continuing flow of foreclosed properties hitting the market."