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Stronger Traffic Boosts Builder Confidence

After jumping 11 points in three months, builder confidence inched up one point in October to 41, remaining at its highest level since June 2006, the ""National Association of Home Builders (NAHB)"":http://www.nahb.org/news_details.aspx?sectionID=134&newsID=15566 reported Tuesday, matching economist expectations.

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The October boost was due entirely to a surge in homebuyer traffic in October, as other elements of the index were flat from September.

The traffic index├â┬ó├óÔÇÜ┬¼├óÔé¼┬Øwhich had been revised downward in September to 30, from an originally reported 31├â┬ó├óÔÇÜ┬¼├óÔé¼┬Øleapt to 35, its highest level since April 2006. The traffic index back then did not lead to a strong increase in sales, as new home sales in April 2006 rose just 7,000, 0.6 percent, and that increase was followed by three straight months of decline.

The last time the traffic index rose by as many as five points was in July this year, accompanied by a 13,000 increase in new home sales which then slipped in August. The next government report on new home sales is scheduled to be released October 24.

The October improvement in the confidence index├â┬ó├óÔÇÜ┬¼├óÔé¼┬Øformally the Housing Market Index (HMI)├â┬ó├óÔÇÜ┬¼├óÔé¼┬Ømarked the sixth straight month-to-month gain. The overall index has gained 24 points in the last year. The October reading also marked the fifth straight month the index was more than double what it had been one year earlier.

The HMI, considered a measure of builder confidence, could be reflected in permits and starts data reported for October. That report from the Census Bureau, will be issued in November. Meanwhile, Census will report Wednesday on permits and starts for September when builder confidence (as reported by NAHB) rose three points to 40, the highest level June 2006.

In addition to the traffic measure, the assessment of current sales remained at 42├â┬ó├óÔÇÜ┬¼├óÔé¼┬Øthe highest level since July 2007├â┬ó├óÔÇÜ┬¼├óÔé¼┬Øand the measure of future sales├â┬ó├óÔÇÜ┬¼├óÔé¼┬Øsix months forward├â┬ó├óÔÇÜ┬¼├óÔé¼┬Østayed at 51, the highest level since February 2007.

The current sales reading is up 25 points in the last year. The outlook for future sales has risen 28 points in the last year. Buyer traffic is up 21 points since October 2011, the strongest year-year gain since the index began in 1986.

""Many builders are reporting increases in the number of serious buyers visiting their sales offices, and the overall confidence measure is much higher than it was at this time last year,"" noted NAHB chairman Barry Rutenberg, a home builder from Gainesville, Florida. ""The concern is that, even though demand for new homes is rising, overly tight credit conditions are still constraining new building and new purchases at a time when that kind of economic activity and the job growth it generates are greatly needed.""

The index, built based on surveys conducted jointly by the NAHB and ""Wells Fargo"":https://www.wellsfargo.com/, 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 from 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 overall index has been under 50 since April 2006, 77 straight months.

Regionally, the index improved in three of the four Census regions, up five points in the West to 49 and up three points in the South and Northeast to 42 and 24, respectively. The index fell four points to 41 in the Midwest.

About Author: Mark Lieberman

Mark Lieberman is the former Senior Economist at Fox Business Network. He is now Managing Director and Senior Economist at Economics Analytics Research. He can be heard each Friday on The Morning Briefing on POTUS on Sirius-XM Radio 124.
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