Builder Confidence in New, Single-Family Homes Highest in Nearly 10 Years

'The fact that builder confidence has returned to levels not seen since 2005 shows that housing continues to improve at a steady pace'

The NAHB/Wells Fargo Housing Market Index reached 60 in July and along with the one-point upward revision to June’s index mark a high in the index not seen since November 2005.
The NAHB/Wells Fargo Housing Market Index reached 60 in July and along with the one-point upward revision to June’s index mark a high in the index not seen since November 2005.
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Builder confidence in the market for newly built, single-family homes in July hit a level of 60 on the National Association of Home Builders/Wells Fargo Housing Market Index (HMI) released today while the June reading was revised upward one point to 60 as well. The last time the HMI reached this level was in November 2005.

“The fact that builder confidence has returned to levels not seen since 2005 shows that housing continues to improve at a steady pace,” said NAHB Chairman Tom Woods, a home builder from Blue Springs, Mo. “As we head into the second half of 2015, we should expect a continued recovery of the housing market.”

“This month’s reading is in line with recent data showing stronger sales in both the new and existing home markets as well as continued job growth,” said NAHB Chief Economist David Crowe. “However, builders still face a number of challenges, including shortages of lots and labor.”

Builders report more serious buyers are visiting models and discussing prices and features. While buyers are taking more time to decide to buy, more of them are finally making those decisions. However, builders remain concerned about their access to lots and labor. Ready-to-build lot supply continues to be the biggest concern among builders as the cheaper lot supply left from the bust is about exhausted, the pipeline of new developments was interrupted by very limited access to capital from regional and community banks and competition for the available lots has intensified.

In a May 2015 survey, 62% of builders scored lot supply as low or very low, up from 59% in May 2014 and 43% in September 2012. As a result, 70% rated the price of A lots as somewhat or substantially higher than a year ago. B and C lot prices were also rated higher by 61% and 53% of the builders, respectively. One of the results of higher land prices has been difficulty delivering modestly priced homes for first time home buyers. Builders reported the share of homes sold to first time home buyers was 18%, up slightly from last year at 16% but well below the historic average of 30%.

Two of the three HMI components posted gains in July. The index of current sales rose one point from the June level to 66, topping almost 10 years of values below that level. The index for expected sales rose two points from June’s 69 to 71 also the highest in almost 10 years. The index for traffic fell one point to 43 from the six month high in June of 44.

Looking at the three-month moving averages for regional HMI scores, the West and Northeast each rose three points to 60 and 47, respectively. The South and Midwest posted respective one-point gains to 61 and 55.  

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