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HMI Continues to Post Good Results

Optimism Grows Amongst Builders of Single-family Homes

HMI Continues to Post Good Results

Developed from a monthly survey that NAHB has been conducting for 30 years, the Housing Market Index 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 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.

Builders' confidence in the new, single-family home market gained one point to 65 in July, according to the latest National Association of Home Builders/Wells Fargo Housing Market Index - the sixth consecutive month that levels have ended up in the low- to mid-60s.

Even though builders report solid demand for single-family homes, labor shortages, a dearth of buildable lots and rising construction costs continue to be a challenge, making it increasingly difficult to build homes at affordable price points relative to buyer incomes.

Even as builders try to rein in costs, home prices continue to outpace incomes. According to the report, the current low mortgage interest rate environment should be getting more buyers off the sidelines, but they remain hesitant due to affordability concerns. Still, attractive rates should help spur new home purchases in large metro suburban markets, where approximately one-third of new construction takes place, as indicated by the NAHB Home Building Geography Index. Year-to-date, new home sales have risen 4%, even as single-family construction starts have fallen 4.9% and permits for new single-family construction have plunged 16.1%.

All the HMI indices inched higher in July. The index measuring current sales conditions rose one point to 72, the component gauging expectations in the next six months moved a single point higher to 71 and the metric charting buyer traffic increased one point to 48, albeit still below the positive threshold.

Looking at the three-month moving averages for regional HMI scores, the South moved one point higher to 68 and the West was also up one point to 72. The Northeast remained unchanged at 60 while the Midwest fell a single point to 56.

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November 12, 2019, 4:31 pm PDT

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