After eight consecutive monthly declines, an index that gauges builder confidence in the single-family housing market gained one point in October.
The National Association of Home Builders/Wells Fargo Housing Market Index, reached a level of 31 — a score over 50 indicates that more builders view sales conditions as good than poor, and the reverse is true for scores below 50, the builders group reported this week.
Derived from a monthly survey that the builders trade group has conducted for the past 21 years, the index is based on builder responses to several questions. Builders are asked whether current single-family home sales and sales expectations for the next six months are “good,” “fair,” or “poor,” and the survey also asks builders whether traffic of prospective buyers is “high to very high,” “average,” or “low to very low.”
The survey responses are converted to scores that are used to calculate the index.
“While the index remains at a low level, the single-point increase from September’s reading suggests that builder attitudes for new-home sales may be stabilizing,” said David Seiders, NAHB chief economist, in a statement. “This is attributable to several key economic factors: mortgage interest rates have fallen substantially from their summer highs, energy prices have dropped dramatically from their recent peaks, consumer sentiment has posted a strong rebound and the job market is doing reasonably well.”
And David Pressly, NAHB president and a home builder from Statesville, N.C., said in a statement, “More than three out of four builders are offering substantial sales incentives to move their product and limit cancellations, and this aggressive strategy is working — making this an opportune time for home buyers to enter the market. The market correction appears to be approaching the bottom in terms of sales volume, and we expect the supply-demand balance to improve considerably before long.”
The component that gauges current single-family home sales remained unchanged at 32 in October, while the component gauging expected sales in the next six months rose four points to 41. The component gauging traffic of prospective buyers edged up one point from last month, to 23.
The HMI posted gains in two regions and fell in two others in October. The HMI gained five points to 33 in the Northeast and registered a four-point gain to 20 in the Midwest. The largest decline was posted in the West, where decreased affordability and a major snap-back in investor activity resulted in a five-point drop to 32. The HMI fell one point to 37 in the South, the association reported.