Home Builders Keep Gaining Confidence

• August 17, 2009

by Will Smith

In another sign that the worst of the housing woes have passed, the index that measures home builder confidence rose again in July. The National Association of Home Builders/Wells Fargo Housing Market Index, or HMI, reached 18, the highest it has been since June of last year.

The HMI is calculated based on a survey of home builders’ perceptions of three component trends: current new home sales, sales projected for coming months, and traffic from prospective buyers. The six-month projection component, in particular, rose markedly over the previous month.

“One very positive aspect of today’s report is the big gain registered in the component gauging home builders’ expectations for the next six months,” NAHB chief economist David Crowe commented in the announcement. “This reflects anticipated sales stemming from the tax credit as well as recent signs that an economic recovery has begun.”

While the continued rise of the index is welcome news, it still has a ways to go before reaching 50, which NAHB defines as the threshold between good and poor sales conditions. The graph below illustrates how far the HMI fell since its most recent peak in 2005. The pink line represents the HMI; the three other lines represent the components that comprise the index.

Housing Market Index 1995-2009, courtesy of NAHB

NAHB is pushing hard for Washington to extend and expand the $8,000 tax credit, which it cites as a leading reason home sales have strengthened. The credit currently expires on November 30th and is available only to first-time home buyers. NAHB, which is the national lobby for home builders, wants to see the date pushed out a full year to November 30, 2010, and it wants those eligible for the credit to be expanded beyond first-timers to include everyone at a certain income level.

“There is definitely a sense of hope among builders that the worst of the downturn is over and that a turning point is near at hand,” said Crowe. “Meaningful action by Congress could ensure that this upward momentum continues and that housing can help push the economy back onto solid ground.”

So far there has been no signal from Congress or the administration that such an expansion of the program is planned.