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Growing Demand Buoys Builder Confidence

Builder Confidence reached a high of 70 points for the fourth time in 2018 according to the National Association of Home Builders/Wells Fargo Housing Market Index (HMI) released on Tuesday.

The National Association of Home Builders [1] (NAHB) derives this index from a monthly survey that gauges builder perception of current single-family home sales and sales expectations for the next six months. The survey also asks builders to rate traffic of prospective buyers. The scores for each component are then used to calculate the seasonally adjusted index where any number over 50 indicates that more builders view conditions as good.

Builder confidence in the market rose two points against April according to the survey, while the HMI chart gauging current sales conditions increased two points to 76 in May.

Despite the solid numbers of the May report due to “growing consumer demand for single-family homes,” Randy Noel, Chairman, NAHB said that record high prices of lumber were hurting bottom lines and “making it more difficult to produce competitively priced houses for newcomers to the market.”

Explaining the factors that were likely to increase consumer demand, Robert Dietz, Chief Economist at NAHB said, “Tight housing inventory, employment gains, and demographic tailwinds should continue to boost demand for newly-built single-family homes.” Additionally, he said that these fundamentals were likely to improve the housing market at a steady pace in the months ahead.

The HMI data measuring buyer traffic and builder expectations in the next six months, however, remained unchanged at 51 and 77 respectively.

Regionally, on a quarterly basis, HMI data for the West and Northeast remained unchanged at 76 and 55 respectively, while the index declined one point each to 72 and 65 for the South and Midwest.