Econintersect: According to the National Association of Home Builders (NAHB) /Wells Fargo Housing Market Index (HMI) for October 2011, home builder confidence jumped to levels last seen when the home buyer tax credit program helped spur the market in April of 2010.“Builder confidence regained some ground in October due to modest improvements in buyer interest in select markets where economic recovery is starting to take hold and where foreclosure activity has remained comparatively subdued,” said NAHB Chairman Bob Nielsen, a home builder from Reno, Nev. “That said, confidence remains quite low as builders continue to confront overly restrictive lending policies that are discouraging prospective buyers, problems with new-home appraisals and widespread uncertainty regarding federal support for homeownership.”
“This latest boost in builder confidence is a good sign that some pockets of recovery are starting to emerge across the country as extremely favorable interest rates and prices catch consumers’ attention,” said NAHB Chief Economist David Crowe. “However, it’s worth noting that while some builders have shifted their assessment of market conditions from ‘poor’ to ‘fair,’ relatively few have shifted their assessments from ‘fair’ to ‘good.’ One reason is that builders are facing downward pricing pressures from foreclosed homes at the same time that building materials costs are rising, and this is further squeezing already tight margins.”
There is reasonable correlation between this HMI and US Census Housing starts.
This index remains at recession levels, is still below post-recession highs, and little above historical lows. The good news is that the index is improving.
The following graph shows how the NAHB/Wells Fargo Index has performed relative to the last three recessions:
The dramatically poorer performance in 2010 and 2011 speaks volumes about how far the market has yet to move for the homebuilders to see significant improvement in single family housing starts.