Builder Sentiment Stabilizes In January

January 18, 2006

A drop in mortgage rates and a rise in consumer confidence helped to stabilize the confidence and market expectations of single-family home builders, according to the latest National Association of Home Builders/Wells Fargo Housing Market Index (HMI) released today.

The index held steady at 57 for the second month in a row following a six-month slide from peak levels in mid-2005. The January level, comfortably above the midpoint, indicates that the majority of builders still see conditions as positive in their markets.

“Housing markets across the country have cooled, as predicted, and builders are aware that some slowing in demand is inevitable following the record breaking sales for the past three years,” said NAHB President David Pressly, a small market builder and developer from Statesville, N.C. “While the recent decline in mortgage rates helped buoy builders’ confidence, they are adjusting to the changes they are seeing and hearing in their sales offices.”

“Single-family housing affordability has been eroded by the accumulation of large house price increases in recent years, but some softening of long-term interest rates since the early-December survey helped to buoy builder attitudes,” said NAHB Chief Economist David Seiders. “This has been bolstered by the fact that consumer confidence has rebounded nicely from post-Hurricane Katrina lows.”

Derived from a monthly survey that NAHB has been conducting for approximately 20 years, the NAHB/Wells Fargo HMI gauges builder perceptions of current single-family home sales and sales expectations for the next six months as either “good,” “fair” or “poor.” The survey also asks builders to rate traffic of prospective buyers as either “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 sales conditions as good than poor.

Two of the HMI’s component indexes were unchanged for the month. The third component, the index gauging current sales, edged down two points to 62. The index gauging sales expectations for the next six months held at 65, and the index gauging traffic of prospective buyers remained at 40. All three components are down 15 points from their June 2005 highs.

Builder confidence was down across three regions of the country, with the West slipping from an exceptionally high level on the confidence scale to one more on par with the South. In the West, the HMI fell from 75 in December to a still-impressive 65 in January, while in the South, the HMI ticked down a point to 66. In the Northeast, the gauge slipped three points to 56, while a slight uptick in the Midwest increased that region’s HMI from 34 to 36.

Source: NAHB

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