Builder Confidence Holds Strong and Steady in May

Builder confidence in the new-homes marketplace held firm at a healthy level in May, the National Association of Home Builders (NAHB) reported recently. NAHB's Housing Market Index (HMI), a monthly gauge of builder sentiment, remained unchanged from the 69 reading in April.

"Demand remains strong and as mortgage interest rates begin to edge up, buyers continue to move into the marketplace at a healthy clip," said NAHB president Bobby Rayburn, a home and apartment builder from Jackson, Miss. "Robust job growth, solid home-price appreciation and favorable interest rates that remain low and attractive by historical standards point to an upbeat outlook for housing."

The HMI is derived from a monthly survey of builders that NAHB has been conducting for the last 19 years. Homebuilders are asked to rate current and expected sales of single-family homes as "good," "fair" or "poor." They are also asked to rate traffic of prospective buyers as "high to very high," "average" or "low to very low." Scores for responses to each component are used to calculate a seasonally adjusted index, where any number over 50 indicates that more builders view sales conditions as good than poor.

The indicator measuring buyer traffic soared to a 13-month high in May, offsetting slight declines in the two other components that comprise the HMI index. The index gauging traffic of prospective buyers jumped seven points to 55, indicating significant improvement in the flow of visitors to model homes over the last month. Meanwhile, the index gauging current sales of new single-family homes fell three points to 74, while the index gauging sales expectations for the next six months declined one point to 75.

"When the index of prospective buyers jumps above 50, it usually indicates a solid housing market and shows that more families are looking for new homes," said NAHB chief economist David Seiders. "With job growth and household income accelerating, this will provide a stronger foundation for economic activity during the second half of this year and in 2005. And that's good news for housing, despite moderate increases in mortgage rates from recent lows."