Housing Bubble

Housing Market Index reveals rise in builder confidence

May 15, 2003

Builder confidence in the market for new single-family homes rallied in May as a further downshift in mortgage interest rates and improving consumer confidence considerably brightened the outlook for future sales activity, the National Association of Home Builders (NAHB) reported today. NAHB’s Housing Market Index (HMI), a monthly gauge of builder sentiment, rose four points to 56 in May, regaining much of the ground it lost earlier this year due to poor weather, war and economic jitters.

"The spring home buying season is under way, and builders are encouraged by the strong demand they are seeing," said Kent Conine, NAHB president and a home builder from Dallas. "The continuing appeal of the lowest mortgage rates in decades and strong home price appreciation, on top of the successful outcome in Iraq, has prompted many people to go forward with a home purchase who may have postponed that decision in previous months."

"The latest measures of consumer confidence have shown considerable improvement, and this is good news for home builders," added NAHB Chief Economist David Seiders. "While concerns about availability and cost of lots for development continue in many markets, builders are solidly optimistic about being able to sell homes that are getting built. Expectations for sales in the next six months are back up to speed with their level at the beginning of the year."

The HMI is derived from a monthly survey of builders that NAHB has been conducting for nearly 20 years. Home builders are asked to rate current sales of single-family homes and sales expectations for the next six months as "good," "fair" or "poor." They are also asked to rate traffic of prospective buyers as either "high to very high," "average" or "low to very low." Scores for responses to each component are used to calculate a seasonally adjusted index, where any number over 50 indicates that more builders view sales conditions as good than poor.

All three component indexes gained substantially in May. The index gauging current sales of new single-family homes rose four points to 61, while the index gauging sales expectations for the next six months and the index gauging traffic of prospective buyers each rose six points to 68 and 41, respectively.

"Builders are on track for a very healthy year in 2003 as the market for new single-family homes continues to exhibit stability and strength," said NAHB’s Seiders. "We are now forecasting that new-home sales and starts in this category will be essentially on par with last year’s solid numbers."

Source: National Association of Home Builders