Builder Confidence Hits 7-Year High, New Home Sales Rising

In continuing signs the housing market is on the upswing, builder confidence in the market for newly-built single-family homes hit a significant milestone in June, surging eight points to a reading of 52 on the National Association of Home Builders/Wells Fargo Housing Market Index (HMI) released this week. Any reading over 50 indicates that more builders view sales conditions as good than poor.

“This is the first time the HMI has been above 50 since April 2006, and surpassing this important benchmark reflects the fact that builders are seeing better market conditions as demand for new homes increases,” said NAHB Chairman Rick Judson, a home builder and developer from Charlotte, N.C. “With the low inventory of existing homes, an increasing number of buyers are gravitating toward new homes.”

The eight-point jump in the index was the biggest one-month gain since August and September of 2002, when the HMI recorded a similar increase of eight points.

“Builders are experiencing some relief in the headwinds that are holding back a more robust recovery,” said NAHB Chief Economist David Crowe. “Today’s report is consistent with our forecast for a 29 percent increase in total housing starts this year, which would mark the first time since 2007 that starts have topped the 1 million mark.”

In a recent interview for RISMedia, David Schoner, a national leading expert in new-home sales and marketing, and 17-year vice president of Coldwell Banker, NRT, responsible for all New Homes Division operations, detailed the benefits of working in new home sales to agents.

“There are a lot of positive things happening and new-home sales are clearly on the way back up,” he said. “When I see the limited inventory and bidding wars going on in so many markets, I think about what a great solution new homes offer. Agents are busy writing up offers, but are they actually closing deals? Buyers are getting frustrated—instead of paying top dollar and living with compromises, a new home can give them exactly what they want.”

For Mark Woodroof, partner at Houston-based Better Homes and Gardens Real Estate Gary Greene, the inventory shortage is making new-home construction another critical profit center in the new age of real estate. “The inventory situation should not have snuck up on us,” explains Woodroof. “We were building less than 500,000 homes, when the market calls for 1.5 million a year. The new-home builders will not be able to fix this in a year, but it will be a continued growth area. There is a 30 percent increase in housing starts so far this year. However, we are adding 10,000 people a month with immigration—so new homes alone won’t get it done.”

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 over 50 indicates that more builders view conditions as good than poor.

All three HMI components posted gains in June. The index gauging current sales conditions increased eight points to 56, while the index measuring expectations for future sales rose nine points to 61 – its highest level since March 2006. The index gauging traffic of prospective buyers rose seven points to 40.

The HMI three-month moving average was up in three of the four regions, with the Northeast and Midwest posting a one-point and three-point gain to 37 and 47, respectively. The South registered a four point gain to 46 while the West fell one point to 48.

Reprinted with permission from RISMedia. ©2013. All rights reserved.