Home Builder Confidence Improves in May as Future Sales Expectations Reach Highest Level in 6 Years

Andrew Klips  |

Regrouping after three straight months of declines, a barometer of U.S. home builders’ confidence rose in May as builders showed an improvement in sentiment towards current and future conditions of the single-family housing market, according to the National Association of Home Builders/Wells Fargo Housing Index released on Wednesday.

The NAHB/Wells Fargo index climbed to a 44 reading in May, following a downwardly revised 41 mark in April. In January, the index scored a 47, but each subsequent month recorded a decline, from 46 to 44 and then 41 last month.

The May reading was basically in line with expectations of economists.

Leading into 2013, the seasonally adjusted index had risen in eight consecutive months from a 28 in May to a 47 in December. Near the peak of the recession, the index had plunged as low as 8 in January 2009. Incidentally, the highest level in the history of the index – dating back to January 1985 – was 78 in December 1998.

The index is built upon survey results on builders’ perceptions of current single-family home sales and expectations over the next six months. Readings over 50 indicate that the majority of survey respondents see conditions as good, rather than poor. Three categories are scored: current sales, six-month expectations, and traffic of prospective buyers. All three categories improved in May, with readings of sales six-months down the road registering a 53, the highest mark since February 2007.

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The index gauging current sales conditions rose from 44 in April to 48 in May. The prospective buyers index increased from 30 in April to 33 in May.

“Builders are noting an increased sense of urgency among potential buyers as a result of thinning inventories of homes for sale, continuing affordable mortgage rates and strengthening local economies,” said Rick Judson, chairman of the NAHB and homebuilder from Charlotte, North Carolina. “This is definitely an encouraging sign even amidst rising challenges with regard to the cost and availability of building materials, lots and labor,” he added.

Although improving this month, the NAHB/Wells Fargo Housing Index hasn’t registered above 50 since April 2006, indicating the builders still hold a pessimistic opinion of market trends.

Stocks are taking a breather from more record highs hit on Tuesday in early trading on Wednesday as investors mull the modestly better barometer of home builders’ confidence.

Separately, and creating a drag on the Wall Street, was a worse-than-expected report from the New York Federal Reserve that showed the Empire State Manufacturing Index dropped into negative territory to a reading of -1.4 in May, following a 3.1 mark in April. Economists forecast a 3.0 reading. Levels above zero indicate that the majority of survey respondents view manufacturing conditions in the New York region as improving, instead of declining.

Just over an hour into the trading session, the Dow Jones Industrial Average is off by 13 points while the S&P 500 and Nasdaq teeter back and forth above and below the even line.

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