Home Builder Confidence Highest Since 2006

Andrew Klips  |

The National Association of Home Builders/Wells Fargo Homebuilders’ Confidence Index edged upward by two points in December from a downwardly revised 45 level in November to a seasonally adjusted reading of 47.  The preliminary reading for November was 46.  The December level was in line with economist predictions.

The December reading is the highest level since April 2006 – just before the housing market collapse.  Although, it still sits below 50, a key metric that signals more builders view sales conditions as good, rather than weak.

The index bottomed in October 2011 at 17.

Declining inventories of existing homes for sales were a contributing factor to increased optimism; however, stiff lending policies by banks and high unemployment are weighing heavily on the homebuilding business.

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Recent data from a variety of sources, including the Commerce Department, have shown the housing market continuing to recover slowly with increases in home prices, new construction and sales volumes.  The rebound is rightfully slow and cautious given macroeconomic conditions as evidenced in the NAHB/WFHM Index still trending below 50, despite rising for eight consecutive months.

The index is comprised of three components, two of which are now registering above 50.  The measure of sales expectations in the next six months declined from 52 to 51 in December, while the gauge of current sales expectations climbed from 49 to 51.  The third component, the level of prospective buyer traffic, remains in the doldrums with a 1-point increase from 35 in November to 36 in December.

Investors will be looking ahead to additional information on the housing market throughout the week.  Housing starts will be reported on Wednesday and existing home sales statistics will arrive on Thursday.

Wall Street is continuing its rally from Monday when the Dow Jones Industrial Average, S&P 500 and Nasdaq all notched gains in the area of 1 percent.  More than halfway through Tuesday’s trading, the Dow is up triple digits and the S&P and Naz are up 1.2 percent and 1.5 percent, respectively.

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