You might naturally assume that with the uptick in homebuilding activity across the country and the economy’s steady improvement, homebuilders everywhere would be jumping for joy. Not exactly.
In fact, a recently released report from the National Association of Home Builders illustrates the industry’s reluctance until now to fully embrace the optimism we’ve been feeling for some time in the West. According to the NAHB/Wells Fargo Housing Market Index, nationwide builder confidence appeared to turn a corner in June, when the index results surged eight points to a reading of 52 – topping 50 for the first time in seven years. Fifty is the magic number: a reading higher than 50 indicates that more builders view sales conditions as good rather than poor.
“This is the first time the HMI has been above 50 since April 2006, and surpassing this important benchmark reflects that builders are seeing better market conditions as demand for new homes increases,” said NAHB Chairman Rick Judson in a prepared statement. Judson, a home builder and developer from Charlotte, N.C., attributed the shift to a shortage of existing-homes, which is driving more buyers to purchase new homes.
The index hasn’t seen a one-month jump this large since before the recession, when it rose eight points between August and September 2002. The Housing Market Index is based on builders’ impressions of current single-family home sales and sales expectations for the coming six months. Builders also are asked to rate prospective buyer traffic as “high to very high,” “average,” or “low to very low.”
All three indicators posted gains in June. The index measuring current sales conditions increased eight points to 56, while the index gauging sales expectations rose nine points to 61, its highest level since March 2006. Traffic expectations rose seven points to 40 on the index scale.
NAHB Chief Economist David Crowe said builders finally are “experiencing some relief in the headwinds that are holding back a more robust recovery,” and we believe he’s right. According to Crowe, builders’ June display of confidence supports the NAHB’s forecast for a 29 percent increase in housing starts this year, which would be the first time since 2007 that starts will have topped 1 million.
(Editor’s Note: Andy Warren is President of Maracay Homes, the Arizona subsidiary of the Weyerhaeuser Real Estate Company. He serves on the Board of Directors for the Home Builders Association of Central Arizona and Greater Phoenix Leadership; as well as the Board of Directors and as an Executive Committee member with the Greater Phoenix Economic Council. He is also an active member of the Urban Land Institute.)