Builder Confidence Surges in October

Builder confidence in the market for single-family homes surged in October to the highest level in almost four years, according to the National Association of Home Builders’ Housing Market Index (HMI). The HMI rose four points to 72 in October to match the level recorded in December of 1999.

“The October HMI clearly demonstrates how sensitive the housing market is to changes in interest rates,” said NAHB President Kent Conine, a home and apartment builder from Dallas. “Rates for a 30-year fixed-rate mortgage peaked at an average of 6.44 percent during the first week of September, causing some erosion of the HMI. By the first week in October, they had dropped back down to 5.77 percent, fueling a rebound in builder sentiment.”

“As the HMI indicates, the builders’ outlook for single-family housing is very good, and we expect the improving economy to sustain robust levels of housing market activity even though mortgage interest rates are somewhat higher than the record lows that we saw earlier this year,” said NAHB Chief Economist David Seiders.

The HMI is derived from a monthly survey of builders that NAHB has been conducting for nearly 20 years. Home builders are asked to rate current sales of single-family homes and sales expectations for the next six months as “good,” “fair” or “poor.” They are also asked to rate traffic of prospective buyers as “high to very high,” “average” or “low to very low.” Scores for responses to each component are used to calculate a seasonally adjusted index, where any number over 50 indicates that more builders view sales conditions as good than poor.

Just as the HMI rose in October to the highest level in almost four years, its components increased as well. The index gauging current sales conditions rose six points to 79, the highest level since December of 1999, when the level was also 79. Meanwhile, the index gauging sales expectations for the next six months rose four points to 82, the highest level since November of 1999 when it reached a record of 84. The index gauging traffic of prospective buyers rose two points to 53.