The National Association of Home Builders/Wells Fargo Housing Market Index (HMI) reports that Builder confidence in the market for newly-built single-family homes rose one point in July. Now at 65, sentiment levels have held at a steady low- to- mid-60s range for the past six months.

However, optimism in rising numbers is mixed with concern for other factors in the construction environment.

“Builders report solid demand for single-family homes,” Greg Ugalde said, NAHB Chairman and home builder/developer from Torrington, Conn. “However, they continue to grapple with labor shortages, a dearth of buildable lots and rising construction costs that are making it increasingly challenging to build homes at affordable price points relative to buyer incomes.”

Ugalde’s concerns are similar to last months’ regarding increased expenditure as the economic climate continues the trend of uncertainty.

“Even as builders try to rein in costs, home prices continue to outpace incomes,” said NAHB Chief Economist Robert Dietz, “The current low mortgage interest rate environment should be getting more buyers off the sidelines, but they remain hesitant due to affordability concerns. Still, attractive rates should help spur new home purchases in large metro suburban markets, where approximately one-third of new construction takes place.”

In spite of hiked costs, every HMI index category inched higher in July: current sales conditions rose one point to 72, the component gauging expectations in the next six months moved a single point higher to 71 and the metric charting buyer traffic increased one point to 48. Looking at the three-month moving averages for regional HMI scores, the South moved one point higher to 68 and the West was also up one point to 72. The Northeast remained unchanged at 60 while the Midwest fell a single point to 56.

The Housing Market Index (HMI) is based on a monthly survey of NAHB members that has been conducted for 30 years and was designed to take the pulse of the single-family housing market. The survey asks respondents to rate market conditions for the sale of new homes at present and in 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 rather than poor.

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