Builder confidence in the housing market remained unchanged in August according to the National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index (HMI) released Monday.  While two of the three indices that make up the HMI improved, the index measuring the future prospects for new homes offset those gains.

The HMI is derived from a monthly survey of new home builders which asks them to assess both current new home sales and their expectations for sales in six months as "good," "fair," or "poor."  Builders are also asked to rate the traffic of prospective buyers as "high to very high," "average" or "low to very low."  Any score of 50 or more on the three components or on the composite HMI indicates that more builders view conditions as good than view them as poor.

The component gauging current sales conditions gained one point to 16 - its highest level since March of this year - and the component gauging traffic of prospect buyers rose one point to 13 following two consecutive months at 12. However, the component gauging sales expectations for the next six months declined two points to 19.  This followed a six-point gain in July...

Bob Nelson, chairman of NAHB said that 41 percent of the builders responding to a special questions section of the HMI indicated they had lost sales contracts due to buyers' inability to sell their current homes.  This follows a report last month from the National Association of Realtors (NAR) on existing home sales.  In that report Lawrence Yun, NAR chief economist, said that 16 percent of the associations members reported a sales contract was cancelled in June, four times the cancellation rate in May.  NAR said those cancellations were the result of tight credit and appraisal problems.  Perhaps we are seeing a domino effect with underwriting issues that cancel one type of sale leading to the collapse of new home sales contracts.

"The uncertain economic climate and concerns about job security are discouraging many potential buyers from exploring a home purchase at this time," said NAHB Chief Economist David Crowe. "While buying conditions are very favorable in terms of prices, interest rates and selection, consumers are worried about what the future will bring, and builders are echoing those sentiments in their responses to the HMI survey."

The survey results were mixed on a regional basis.  While the Northeast posted a four-point gain to 19, the West registered a one-point gain to 15, the South held even at 17 and the Midwest posted a two-point decline, to 10.