Builder confidence in the market for newly built, single-family homes rose four points to 18 on the National Association of Home Builders/Wells Fargo Housing Market Index (HMI) for October. This marks the largest one-month gain since April 2010, when the home buyer tax credit program helped fuel the market.
"Builder confidence regained some ground in October due to modest improvements in buyer interest in select markets where economic recovery is starting to take hold and where foreclosure activity has remained comparatively subdued," said NAHB chairman Bob Nielsen, a home builder from Reno, Nev. "That said, confidence remains quite low as builders continue to confront overly restrictive lending policies that are discouraging prospective buyers, problems with new-home appraisals and widespread uncertainty regarding federal support for homeownership."
Each of the HMI's three component indexes recorded gains in October. The component gauging current sales conditions rose four points to 18, the component gauging sales expectations in the next six months rose seven points to 24, and the component gauging traffic of prospective buyers rose three points to 14.
Regionally, the West recorded a nine-point gain to 21 -- the highest HMI score for that region since August 2007. The Midwest and South each recorded four-point gains, to 15 and 19, respectively, while the Northeast was unchanged at 15.
The NAHB/Wells Fargo Housing Market Index gauges builder perceptions of current single-family home sales and sales expectations for the next six months as "good," "fair" or "poor." Builders are also asked to rate traffic of prospective buyers as "high to very high," "average" or "low to very low." Scores from each component are used to calculate a seasonally adjusted index where any number over 50 indicates that more builders view conditions as good than poor.
"This latest boost in builder confidence is a good sign that some pockets of recovery are starting to emerge across the country, as extremely favorable interest rates and prices catch consumers' attention," said NAHB chief economist David Crowe. "However, it's worth noting that while some builders have shifted their assessment of market conditions from 'poor' to 'fair,' relatively few have shifted their assessments from 'fair' to 'good.' One reason is that builders are facing downward pricing pressures from foreclosed homes at the same time that building materials costs are rising, and this is further squeezing already tight margins."