The NAHB, National Association of Home Builders, has conducted a monthly survey for 30 years, the NAHB/Wells Fargo Housing Market Index, HMI. The HMI rates builder perceptions of current single-family home sales and the expectations of sales 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.” Both components are then used to calculate a seasonally adjusted score, or index in which any number over 50 indicates that more builders view conditions as good, rather than poor.
Scores are reported for regional markets and nationally. The news that home builder confidence held steady sounds nice… maybe until you see that the score was 16 for the 3rd straight month, for instance.
The real news in Spring 2014 is that it is steady… a steady 47. It has been steady for three months. (up slightly from 46 in March). Basically, this is a “no news…but at least it’s not bad news” report.
“The HMI index gauging current sales conditions in April held steady at 51 while the component gauging traffic of prospective buyers was also unchanged at 32. The component measuring expectations for future sales rose four points to 57.”
The other score that is interesting is the prospective buyers traffic: the score is 32, which has been steady (or flat, which paints a different light, doesn’t it?) The good news, more potential buyers are wandering through model homes than last year, when the number was 25.
And the survey reports that fewer people are moving this year. The HMI three-month moving average was down in all four regions of the country:
- The West – Down nine points to 51
- The Midwest – Down four points to 49
- The Northeast – Down 2 points to 33
- The South – Down 2 points to 47
NAHB Chief Economist David Crowe: “Job growth is proceeding at a solid pace, mortgage interest rates remain historically low and home prices are affordable”. Builders report that they can’t find enough workers or lots to build on. Many home buyers are facing tight lending standards and have difficulty getting a mortgage.
What Does the Home Builders Confidence Index Mean?
As the name implies, HMI is a measure of confidence in the economy from those in the home building industry. According to the NAHB, each home built creates an average of three jobs for a year and generates about $90,000 in tax revenue.
As we continue to see a real estate recovery, you can see that the new-home sector of the industry is important to the overall economy. It would seem to me that this is the point of the change of direction as the accordion plays, the “squeeze” is over, and as the industry tries to expand, it faces some problems, like not enough workers, but limited ability to hire new workers.
Tight lending standards are often blamed during these “recovery, but not quite recovered” economic times. Many believe that as long as interest rates stay low, buying power will be strong and attract more home buyers to the table.
The spring market will be an indicator of the state of the industry, and time will tell how quickly the recovery will march on.
But at least builders feel mildly optimistic…we’ll return with updates in 2015.
Related Article: New Home Construction Returns to Frederick
Photo Credit: Hakan Dahlstrom on Flickr