Builder Confidence Gets a Boost in February, Beats Expectations

The NAHB//Wells Fargo Housing Market Index (HMI) finds builder confidence rose 3 points to 62 for February, beating the consensus forecast.

The National Association of Homebuilders said it is the second consecutive month in which all the HMI indices posted gains.

“Ongoing reduction in mortgage rates in recent weeks coupled with continued strength in the job market are helping to fuel builder sentiment,” said NAHB Chairman Randy Noel. “In the aftermath of the fall slowdown, many builders are reporting positive expectations for the spring selling season.”

Forecasts ranged from a low of 54 to a high of 60. The consensus forecast was 58.

“Builder confidence levels moved up in tandem with growing consumer confidence and falling interest rates,” said NAHB Chief Economist Robert Dietz. “The five-point jump on the six-month sales expectation for the HMI is due to mortgage interest rates dropping from about 5% in November to 4.4% this week.”

The index measuring current sales conditions also gained 3 points to 67. The component for expectations in the next six months rose 5 points to 68 and the metric charting buyer traffic gained 4 points to 48.

“However, affordability remains a critical issue,” Mr. Dietz added. “Rising costs stemming from excessive regulations, a dearth of buildable lots, a persistent labor shortage and tariffs on lumber and other key building materials continue to make it increasingly difficult to produce housing at affordable price points.”

Methodology

The HMI is a weighted average of separate diffusion indices for these three key single-family series. The first two series are rated on a scale of Good, Fair and Poor and the last is rated on a scale of High/Very High, Average, and Low/Very Low. A diffusion index is calculated for each series by applying the formula “(Good-Poor+100)/2” to the present and future sales series and “(High/Very High – Low/Very Low + 100)/2” to the traffic series. Each resulting index is then seasonally adjusted and weighted to produce the HMI.

Based on this calculation, the HMI can range between 0 and 100.