Three straight months of decline in lumber prices, along with a solid demand for housing increased the confidence of home builders, according to the National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index (HMI).
The index rose one point to 68 in October continuing its trend of holding in the high 60s since June. “Builders are motivated by solid housing demand, fueled by a growing economy and a generational low unemployment,” said Randy Noel, Chairman, NAHB. “Builders are also relieved that lumber prices have declined for three straight months from elevated levels earlier this summer.”
However, according to Robert Dietz, Chief Economist, NAHB, though the decline in lumber prices has helped reduce some of the cost pressure for builders, they would "need to manage supply-side costs to keep home prices affordable."
“Unless housing affordability stabilizes, the market risks losing additional momentum as we head into 2019,” Dietz said. Additionally, he said that favorable economic tailwinds would continue to support demand despite the challenge on affordability due to ongoing price and increase in interest rates.
The HMI is derived from a monthly survey conducted by NAHB to gauge builder perceptions of current single-family home sales and sales expectations for the next six months. Scores for 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.
The HMI measuring current sales conditions also reflected the overall rise in the index increasing one point to 74 and the component gauging expectations over the next six months rising to 75, compared to 74 last month. The report indicated that the metric charting buyer traffic registered a four-point rise to 53.
Regionally, two regions—Northeast and South—edged up while considering their three-month moving averages, to 57 and 71 points respectively. While the Western region remained unchanged at 74 points, the Midwest fell two points to 57.