HMI: Builder Confidence Holds Strong in November

The NAHB/Wells Fargo Housing Market Index (HMI) finds builder confidence held strong in November at 70, a slightly miss edging down only one point. Forecasts ranged from a low of 70 to a high of 72. The consensus forecast for the HMI was 71.

Still, homebuilder sentiment has held above 60 since February 2019 and the past two months mark the highest sentiment levels for the entire year.

“Single-family builders are currently reporting ongoing positive conditions, spurred in part by low mortgage rates and continued job growth,” said NAHB Chairman Greg Ugalde. “In a further sign of solid demand, this is the fourth consecutive month where at least half of all builders surveyed have reported positive buyer traffic conditions.”

The NAHB has been conducting the Housing Market Index (HMI) for 30 years. The HMI gauges builder perceptions of current single-family home sales and sales expectations for the next six months as “good,” “fair” or “poor.”

The current sales conditions index ticked down two points to 76, and the index for traffic of prospective buyers edged down one point to 53. The NAHB cited inventory shortages as the factor impacting burying traffic.

The HMI 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.

“We have seen substantial year-over-year improvement following the housing affordability crunch of late 2018, when the HMI stood at 60,” said NAHB Chief Economist Robert Dietz. “However, lot shortages remain a serious problem, particularly among custom builders.”

“Builders also continue to grapple with other affordability headwinds, including a lack of labor and regulatory constraints.”

But builders also see brighter days ahead. The index component for sales expectations in the next six months edged higher by one point to 77.