Even with rising home values and increase cost for material and labor, new home builders continue to show confidence in the residential market for single family homes. The National Association of Home Builders (NAHB)/Wells Fargo Housing Market index climbed to 44, three points higher than the revised April reading of 41.
According to NAHB chairman Rick Judson, a combination of low inventories of homes on the market, low home mortgage interest rates and “strengthening local economies” have much to do with the optimism shown by the industry.
The reading is still somewhat because it require a reading above 50 means that more home builder rate conditions as good than poor.
About the NAHB housing market index
The report consists of data accumulated from a monthly survey that has been carried out by the NAHB since 1985. The NAHB/Wells Fargo Housing Market Index measures the following components:
1. Builder perceptions of current single-family home sales
2. Rate sales expectations for the next six months as “good,” “fair” or “poor”
3. Rate traffic of prospective buyers as “high to very high,” “average” or “low to very low”
The score for each component is calculated and a seasonally-adjusted housing index is extrapolated from the data. A score above 50 indicates that more home builders rate conditions as good than poor.
“While industry supply chains will take time to re-establish themselves following recession-related cutbacks, builders’ views of current sales conditions have improved and expectations for the future remain quite strong as consumers head back to the market in force,” said NAHB Chief Economist David Crowe.
Details of May report
To put things in perspective, from December 2002 to December 2007—the start of the Great Recession—the index averaged a reading of 54. In 2009, it plummeted to a historic low at 8 points.
In May, each component measured in the report rose.
* Current sale conditions – +4 points to 48
* Expectations for future sales – +1 point to 53
* Traffic of perspective buyers – +3 points to 33
The reading of 53 for future sales is at the highest since February 2007. The predictions of the 51 economists responding to the Bloomberg survey 40 to 45.
Other housing news
Three of the four regions showed improvement in builders’ confidence. Firms in the Northeast had the most positive response with a 10-point increase, from 31 to 41. Companies in the Midwest climb from 40 to 45. Builder confidence in the South also registered an increase, from 40 to 44. Builders in the West region experienced an 11 point decline in sentiment, from 52 to 41.
In 2012, new home building activities increased 28 percent above 2011, to 728,000 homes—the highest number posted in four years. Nonetheless, it’s far below the 2.07 million units built at the height of the housing market in 2005.