Steady Builder Confidence in June

The NAHB/Wells Fargo Housing Market Index rose one point to 29 from a revised May level of 28. The index is at its highest point in five years, since May 2007. Of the three components, the current sales index increased two points to 32, the highest since April 2007 and the other two components remained level.

 
Builders continue to compete against foreclosed properties and their downward pressure on prices. Credit for buyers and builders remains tight so some sales are cancelled because buyers’ failure to qualify and the inventory of new homes is very low because builders cannot obtain financing to replenish their sales.

 
The index rose steadily from September 2011 to March 2012 and has been holding steady since indicating builders remain at similar levels of confidence through the early spring even in the face of some disappointing national economic news. One reason for the leveling is that the housing recovery is coming from smaller metropolitan areas and not from big powerhouse markets in the west and south. As more local markets remove excess distressed inventory and house prices increase, builder confidence will be more widespread and will again see modest increases.

NAHB expects a 19% increase in new home sales in 2012 compared to 2011. The Housing Market Index is a reasonable predictor of single-family housing starts, as the graph indicates, so we should continue to see modest increases in construction starts over the rest of the spring and into the summer.