Builder confidence in the market for newly-built single-family homes increased five points to a level of 74 in December on the National Association of Home Builders/Wells Fargo Housing Market Index (HMI) after a downwardly revised November reading. This was the highest report since July 1999, over 18 years ago. Builder confidence has improved in 2017 on hopes of an improved regulatory environment for firms in the residential construction sector.
Moreover, the HMI measure of home buyer traffic rose eight points, showing that demand for housing is on the rise. With low employment rates, favorable demographics and a tight supply of existing home inventory, we can expect continued upward movement of the single-family sector next year.
Derived from a monthly survey that NAHB has been conducting for 30 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 for 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.
All three HMI components registered gains in December. The component measuring buyer traffic jumped eight points to 58, reflecting stronger job and income growth, rising consumer confidence and exceptionally low inventories of existing homes on the market. The index gauging current sales conditions rose four points to 81, and the index charting sales expectations in the next six months increased three points to 79.
Wells Fargo Securities
Looking at the three-month moving averages for regional HMI scores, the Midwest climbed six points to 69, the South rose three points to 72, the West increased two points to 79 and Northeast inched up a single point to 54.