The ongoing reduction in mortgage rates in recent weeks coupled with continued strength in the job market are helping to fuel builder sentiment, according to the latest National Association of Home Builders/Wells Fargo Housing Market Index (HMI), released on Tuesday.
“In the aftermath of the fall slowdown, many builders are reporting positive expectations for the spring selling season,” said Randy Noel, Chairman at NAHB. The report revealed that February marked the second consecutive month in which all the HMI indices posted gains. It also noted that current sales conditions rose by three points to 67. The component gauging expectations in the next six months increased five points to 68 and the metric charting buyer traffic moved up four points to 48.
“Builder confidence levels moved up in tandem with growing consumer confidence and falling interest rates,” said Robert Dietz, Chief Economist at NAHB. “The five-point jump on the six-month sales expectation for the HMI is due to mortgage interest rates dropping from about 5 percent in November to 4.4 percent this week.”
However, Dietz indicated that affordability remains a critical issue. He stated that “rising costs stemming from excessive regulations, a dearth of buildable lots, a persistent labor shortage and tariffs on lumber and other key building materials continue to make it increasingly difficult to produce housing at affordable price points.”
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.” To calculate a seasonally adjusted index where any number over 50 indicates that more builders view conditions as good than poor, it also assigns scores for each component. The three-month moving averages for regional HMI scores found that South recorded a one-point gain to 63, while the Northeast declined by two points to 43. The Midwest and West each remained unchanged at 52 and 67, respectively.