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Builder confidence in the market for newly built, single-family homes reached its highest level since May 2007, reaching a level of 29 on the National Association of Home Builders/Wells Fargo Housing Market Index (HMI). This is a gain of five points from the previous month, which was downwardly revised.
"Builders in many markets are reporting that buyer traffic and sales have picked back up after a pause this April," said Barry Rutenberg, NAHB chairman and a home builder from Gainesville, Fla. "It seems we have resumed the gradual upward trend in confidence that started at the beginning of this year, as stabilizing prices and excellent affordability encourage more people to pursue a new-home purchase."
NAHB chief economist David Crowe said: "While home building still has quite a way to go toward a fully healthy market, the fact that the HMI has returned to trend is an excellent sign that firming home values, improving employment and low mortgage rates are drawing consumers back." However, builder and consumer access to credit, inaccurate appraisals and rising materials prices remain “significant impediments,” Crowe said.
Derived from a monthly survey that NAHB has been conducting for 25 years, 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." The survey also asks builders to rate traffic of prospective buyers as "high to very high," "average" or "low to very low." Scores from each component are then used to calculate a seasonally adjusted index where any number higher than 50 indicates that more builders view conditions as good than poor.
Three out of four regions registered improving builder sentiment in May. This included a six-point gain to 32 in the Northeast and five-point gains to 27 and 28 in the Midwest and South, respectively. The West posted a two-point decline to 29.