Newly built, single family homes are on the rise, as builder confidence landed at a 7-year high this month, showcasing the highest sentiments since January of 2006.
Builder confidence rose six points to 57 on the National Association of Home Builders/Wells Fargo Housing Market Index (HMI) for July, released this week. This is the index’s third consecutive monthly gain.
The report is particularly encouraging in that it shows improvement in builder confidence across every region as well as solid gains in current sales conditions, traffic of prospective buyers and sales expectations for the next six months. But this positive momentum could be disrupted by threats on the policy side, particularly with regard to the mortgage interest deduction and federal support for the housing finance system.
Builders are seeing more motivated buyers coming through their doors as the inventory of existing homes for sale continues to tighten. Meanwhile, as the infrastructure that supplies home building returns, some previously skyrocketing building material costs have begun to soften.
In view of the low housing stock, it’s a great time to rekindle opportunities in the new construction side of our business. Renew any builder relationships that may have stalled during the downturn. In other words, if you don’t already have one, get out there and build a builder.
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.
According to the report, all three HMI components posted gains in July. The component gauging current sales conditions rose five points to 60 – its highest level since early 2006. Meanwhile, the component gauging sales expectations in the next six months gained seven points to 67 and the component gauging traffic of prospective buyers rose five points to 45 – marking the strongest readings for each since late 2005.
All four regions also posted gains in their HMI scores’ three-month moving averages. The Northeast showed a four-point gain to 40 while the Midwest reported an eight-point gain to 54, the South posted a five-point gain to 50 and the West measured a three-point gain to 51.
It’s pretty clear that with the economy no longer on life support, the outlook and the opportunities today are boundless. Inventory shortages are beginning to ease now as prices rise and more sellers come out from under water. It’s a time to set our sights on responsible ways to build for the future.