Builders Feeling Bullish About Future

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The NAHB/Wells Fargo Housing Market index passed the tipping point of 50 this month to top out at 52, the highest level since April 2006 and the largest monthly increase since 2002. The renewed confidence was spread across all three components, with the expectation for the next 6 months rising to 61, the highest in seven years.

The index compares the share of builders who believe the market is better with those who believe it is poor. The index flipping over 50 means builders seeing a better market outnumber those judging it as poor. In the 29 years of the HMI, it has been at 50 or more 58 percent of the time but for never longer than three years until this most recent seven year run below 50.

The causes are several. Builders are seeing more serious buyers, some coming from the existing home market because that inventory is so low. Some of the head winds weakened, particularly building material prices have some back from peaks that were near the peaks in the boom when building was twice as large as it is now. While mortgage rates pop about one-half a percentage point, they remain low by historic standards. Existing home prices are rising providing buyers with greater comfort that a purchase will sustain its value.

Regional three-month moving average indexes were up one point in the Northeast, three points in the Midwest and four points in the South. The West was down one point.

The rise in the HMI is consistent with the NAHB forecast for a 29 percent increase in housing starts in 2013 over 2012 and the first year to pass the one million mark since 2007.

HMI Monthly Increases 8+ and Periods 50

(Via Eye on Housing.)

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