Home Builders' Confidence Rises, NAHB Index Shows

Jump in index beats analysts' expectation

An index measuring builder confidence for constructing newly built, single-family homes rose three points, to 22, in May, beating analysts' expectations. According the National Association of Home Builders/Wells Fargo Housing Market Index (HMI), released Monday, May 17, the HMI is at its highest point since August 2007.

Analysts at High Frequency Economics in Valhalla, New York, predicted a slight dip in the HMI to 18 after April's rise to 19, which was fueled by the now-expired tax credit.

"The really encouraging part of today's HMI is that sales expectations for the next six months continued to gain, despite the expiration of the home buyer tax credits at the end of April," said NAHB Chief Economist David Crowe. "This means builders are more comfortable that the market is truly beginning to recover, and that positive factors for buying a new home--low interest rates, great selection, stabilizing prices, and a recovering job market--are taking the place of tax incentives to generate buyer demand."

Crowe pointed out, though, that while builder confidence had improved from the depths of the housing downturn, it was still quite low by historic standards

Derived from a monthly survey that NAHB has been conducting for more than 20 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 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.

The HMI also posted gains in every region in the U.S. in May.

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