Builder confidence at five year high, West still struggling

Builder confidence continues to rise

Builder confidence in the market for newly built, single-family homes registered its strongest reading since May of 2007, according to the National Association of Home Builders/Wells Fargo Housing Market Index (HMI), released today.

Nationally, builder sentiment toward current sales condition and traffic of prospective buyers increased in May, with optimism about traffic hitting its highest level since April of 2007, while sentiment toward sales expectations for the next six months rose in May as well.

Traffic picking up after a pause in April

“Builders in many markets are reporting that buyer traffic and sales have picked back up after a pause this April,” said Barry Rutenberg, chairman of the National Association of Home Builders (NAHB) and a home builder from Gainesville, FL. “It seems we have resumed the gradual upward trend in confidence that started at the beginning of this year, as stabilizing prices and excellent affordability encourage more people to pursue a new-home purchase.”

“While home building still has quite a way to go toward a fully healthy market, the fact that the HMI has returned to trend is an excellent sign that firming home values, improving employment and low mortgage rates are drawing consumers back,” said NAHB Chief Economist David Crowe. “The pace of this emerging recovery could be stronger were it not for the significant impediments that the market continues to face with regard to builder and consumer access to credit, inaccurate appraisals, and more recently, rising materials prices.”

Regional sentiment varies

Marking improvement in builder sentiment for the month, the Northeast saw a six point gain to 32, the Midwest rose five points to 27 while the South also increased five points to 28. As new home construction hiccups in the West region, builder sentiment fell two points to 29.

Meanwhile, builders continue to see tight lending and tough competition from distressed sales pulling prices down. Dr. Lawrence Yun, Chief Economist at the National Association of Realtors forecasts that resale home volume should rise 7 to 10 percent in 2012, and both the NAR and NAHB are softening their cautious forecasts and showing an increase in optimism toward the housing market.