Builder Confidence in New Single-family Home Market Reaches Nearly 10 Year High

Builder confidence in the market for newly built, single-family homes in August rose one point to a level of 61 on the National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index (HMI). This is the highest reading since November 2005. The index has been at 60 or more since June and above the tipping point of 50 since July 2014.

“The fact the builder confidence has been in the low 60s for three straight months shows that single-family housing is making slow but steady progress,” said NAHB Chairman Tom Woods, a home builder from Blue Springs, Mo. “However, we continue to hear that builders face difficulties accessing land and labor.”  

Prices are rising for both inputs putting some profit squeeze on builders and making it more difficult to build affordable homes for first time buyers. While existing home prices have risen, they have not risen enough to compensate builders for the added supply costs, particularly land. While actual sales prices of new homes have been rising because of the compositional shift, quality constant new home prices have risen less than quality controlled existing home prices. This trend is likely to shift to higher new home prices in order to induce more builders to build.

“Today’s report is consistent with our forecast for a gradual strengthening of the single-family housing sector in 2015,” said NAHB Chief Economist David Crowe. “Job and economic gains should keep the market moving forward at a modest pace throughout the rest of the year.”

Two of the three HMI components posted gains in August. Components measuring current and future home sales also rose to or remained at new heights not seen since late 2005. The index measuring buyer traffic increased two points to 45 and the component gauging current sales conditions rose one point to 66. Meanwhile, the index charting sales expectations in the next six months held steady at 70. 

Looking at the three-month moving averages for regional HMI scores, the Northeast remained at 46; the Midwest rose three points to 58; the South rose two points to 63; and the West rose three points to 63.