The results from the monthly National Association of Home Builders NAHB)/Wells Fargo Housing Market Index (HMI) rose in February for the fifth consecutive month, hitting the highest level for the index in more than four years. The HMI, which gauges home builder confidence, rose from 25 in January to 29 this month.
Each month NAHB conducts a survey of its members in which it asks them their perceptions of the market for new homes. They are asked to describe both current sales and their expectations for sales over the next six months as "good," "fair," or "poor." They are also asked to rate the traffic of prospective buyers as"high to very high," "average," or "low to very low." Answers to the questions are used to construct a composite index - the HPI - and three component indices. A number above 50 on any index indicates that more builders view conditions as good rather than poor.
Each of the three components improved for the fifth consecutive month as well. The index measuring traffic of prospective buyers rose from 21 to 22; the component measuring expectations for the next six months increased from 29 to 34, and builders' perceptions of current sales rose from 25 to 40.
NAHB Chief Economist David Crowe noted that five months is the longest period of sustained improvement for the HMI since 2007 and called it encouraging. "However, it is important to remember that the HMI is still very low, and several factors continue to constrain the market," he said. Foreclosures are still competing with new home sales, and many builders are seeing appraisals come in at less than the cost of construction. Additionally, prospective home buyers are finding it difficult to qualify for a mortgage."
NAHB Builder Confidence vs. Building Permits