Homebuilders, Housing Analysis

Homebuilder Confidence Doubles In 12 Months… That’s Bad

July 18, 2012 by · Leave a Comment 

NAHB Housing Market IndexHomebuilder confidence is soaring.

For the second time in three months, the National Association of Homebuilders reports that the Housing Market Index made sizable gains as illustrated in the chart. 

The Housing Market Index measures homebuilder confidence in the new construction market and is scored between 1-100. Readings above 50 indicate favorable conditions in the single-family new home market. Readings below 50 indicate poor conditions  in the single-family new home market.

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The Housing Market Index leaped to 35 in July, a 6-point improvement and the index’s biggest one-month gain since September 2002.

The HMI is now up 14 points this year and is more than double its value of one year ago.

The Housing Market Index itself is a composite of three separate survey questions sent to NAHB members monthly. The questions are basic:

  1. How are market conditions for the sale of new homes today?
  2. How are market conditions for the sale of new homes in 6 months?
  3. How is prospective buyer foot traffic?

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For July 2012, home builders reported huge gains. Current home sales are up 6 points; sales expectations for the next six months are up 11 points; and buyer foot traffic is up 6 points.

All three survey answers made 5-year highs. Not since 2007 has sales volume and foot traffic been as strong, and over the next 6 months, builders expect a blow-out finish to the year.

It’s no surprise, either.

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Low mortgage rates throughout Northwest Indiana have lowered monthly housing payments to levels below monthly rent for a comparable home. Plus, programs such as the FHA 3.5% downpayment program continue to help first-time buyers get in homes.

There is a downside to rising homebuilder confidence, however. When builders feel more comfortable about their business and the prospects for the future, they’re less likely to make sales concessions to to offer free upgrades. If you’re shopping for new construction, therefore, consider moving up your time frame.

Home affordability remains historically high today. It may not be so tomorrow.

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