Builder Confidence Improves for Third Month

Builder confidence in the market for newly built, single-family homes continued to improve this month, despite ongoing shakiness in new construction numbers.

The National Association of Home Builders (NAHB) reported on Monday a two-point increase in its Housing Market Index, a gauge of builder sentiment measuring current single-family new home sales, expected sales six months out, and volume of traffic from prospective homebuyers.

As of August, the index measured 55, five points above the benchmark separating a market largely viewed as poor from one viewed as good.

All three index components moved upward, with the measure of present home sales climbing to 58, expected sales rising to 65, and buyer traffic increasing to 42.

"Each of the three components of the HMI registered consecutive gains for the past three months, which is a positive sign that builder confidence appears to be firming following an uneven spring," said NAHB Chief Economist David Crowe. "Factors contributing to this rise include sustained job growth, historically low mortgage rates and affordable home prices, which are helping to unleash pent-up demand."

Regionally, August was a mixed picture. Builders in the Northeast and the Midwest expressed greater confidence, boosting those indices to 41 and 65, respectively. The indices for the South and West pulled back slightly, dipping to 51 and 57, respectively.

Each region's three-month moving average was up, thanks in part to significant improvements in July.

While the latest increase brings the headline HMI to its second highest point so far this year—nearly undoing all of the damage from a plunge in February—the effects have yet to be seen in housing starts. Despite gains in confidence over the last few months, new construction has remained weak, plunging 9.3 percent month-over-month in the Census Bureau's June data.

Crowe explained that, as a leading indicator of building activity, the index reflects an expectation of improvements in new home sales and construction for the rest of 2014.

"Builders are seeing buyers that normally would have been buying several years ago, but because of economic conditions had postponed that purchase," he said. "So they're more confident that the pent-up demand will be released."

Estimates for new construction in July are set to be released Tuesday. Economists surveyed by Econoday are calling for a seasonally adjusted annual rate of 963,000 new units started.