Builder confidence in the market for newly built, single-family homes gained five points in May from a downwardly revised reading in the previous month to reach a level of 29 on the National Association of Home Builders/Wells Fargo Housing Market Index (HMI).
This is the index's strongest reading since May of 2007.
“Builders in many markets are reporting that buyer traffic and sales have picked back up after a pause this April,” said Barry Rutenberg, chairman of the National Association of Home Builders (NAHB) and a homebuilder from Gainesville, Fla. “It seems we have resumed the gradual upward trend in confidence that started at the beginning of this year, as stabilizing prices and excellent affordability encourage more people to pursue a new-home purchase.”
This is where we remind you that a 29 is still low on the 100 point scale — anything under 50 is considered poor — but coming from the depths that the index reached and remained, the uptick holds some significance and is another indicator of a slowly improving market.
“While homebuilding still has quite a way to go toward a fully healthy market, the fact that the HMI has returned to trend is an excellent sign that firming home values, improving employment and low mortgage rates are drawing consumers back,” said David Crowe, chief economist for NAHB. “The pace of this emerging recovery could be stronger were it not for the significant impediments that the market continues to face with regard to builder and consumer access to credit, inaccurate appraisals, and more recently, rising materials prices.”
Each of the index's components rebounded from declines in the previous month. The component gauging current sales conditions and the component gauging traffic of prospective buyers each rose five points in May to 30 and 23, respectively, with the traffic component hitting its highest level since April of 2007. The component gauging sales expectations in the next six months rose three points to 34.
Three out of four regions registered improving builder sentiment in May. This included a six-point gain to 32 in the Northeast, and five-point gains to 27 and 28 in the Midwest and South, respectively. The West posted a two-point decline, to 29.