Home Builders Cautiously Optimistic

Housing stimulus legislation signed into law July 30 has given home builders hope that the housing market will rebound in the coming months.

The National Association of Home Builders/Wells Fargo Housing Market Index (HMI) for August registered some improvement in builder’s outlook for home sales, in part due to the recently enacted housing stimulus legislation.

The overall confidence measure held even this month at 16, while the component gauging sales expectations rose two points to 25.

The Housing and Economic Recovery Act of 2008, signed into law by President Bush on July 30, implemented several critical reforms to the housing finance system, provided aid to troubled homeowners facing foreclosure, and created a temporary $7,500 tax credit for first-time home buyers who meet certain income requirements.

“While our overall measure of builder confidence remains at a record low at this time, it is a good sign that two out of three of the HMI’s component indexes rose in August, and this may be an indication that we are nearing the bottom of the long downswing in new-home sales,” said NAHB Chief Economist David Seiders. “Our current forecast shows stabilization of sales during the second half of this year, followed by solid recovery in 2009 and beyond.”

Derived from a monthly survey that NAHB has been conducting for more than 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 “good,” “fair” or “poor.” The survey also asks builders to rate traffic of prospective buyers as “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 out of three of the HMI’s component indexes posted gains in August, including a one-point rise in the index gauging current sales conditions, to 16, and a two-point uptick in the index gauging sales expectations for the next six months, to 25. The component gauging traffic of prospective buyers remained unchanged, at 12.

Regionally, the Northeast and Midwest each posted gains in builder confidence, with the Northeast up two points to 16 and the Midwest up four points to 14. Meanwhile, the South remained unchanged at 20, and the West, whose new-homes market has been heavily impacted by an upswing in foreclosure sales at cut-rate prices, posted a decline of three points to 11.

Source: NAHB