Builder Confidence Starts New Year Strong, Remains Near 18-Year High

Builder confidence is starting the new year strong, as the National Association of Home Builders/Wells Fargo Housing Market Index (HMI) remains near an 18-year high. Builder confidence in the market for newly-built single-family homes dropped just 2 points to 72 in January after soaring to the highest level since July 1999 in December.

“Builders are confident that changes to the tax code will promote the small business sector and boost broader economic growth,” NAHB Chairman Randy Noel, a custom home builder from LaPlace, La., said. “Our members are excited about the year ahead, even as they continue to face building material price increases and shortages of labor and lots.”

The HMI is derived from monthly survey data the NAHB has been collecting for 30 years, and it gauges homebuilder sentiment, or builders’ perceptions of current single-family home sales and sales expectations for the next six months. They are rated as either “good,” “fair” or “poor.”

The three components in the HMI posted only minor losses in January, as the index gauging current sales conditions ticked down just one point to 79. The component gauging sales expectations in the next six months also only lost a single point to 78, while the index measuring buyer traffic fell 4 points to 54.

“The HMI gauge of future sales expectations has remained in the 70s, a sign that housing demand should continue to grow in 2018,” said NAHB Chief Economist Robert Dietz. “As the overall economy strengthens, owner-occupied household formation increases and the supply of existing home inventory tightens, we can expect the single-family housing market to make further gains this year.”

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.

Looking at the three-month moving averages for regional HMI scores, the West increased 2 points to 81 and the South was up 1 point to 73. The Midwest also inched up a single point to 70 while the Northeast climbed 5 points to 59.