U.S. Builder Confidence Index Dips in October

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The National Association of Home Builders is reporting this week that U.S. builder confidence in the market for newly constructed single-family homes remained high despite the National Association of Home Builders/Wells Fargo Housing Market Index dipped down two points to a level of 63 in October 2016.

"Even with this month's drop, builder confidence stands at its second-highest level in 2016, a sign that the housing recovery continues to make solid progress," said NAHB Chairman Ed Brady. "However, builders in many markets continue to express concerns about shortages of lots and labor."

"The October reading represents a mild pullback from a jump in September, and indicates that the housing market continues to make slow and steady gains," said NAHB Chief Economist Robert Dietz.  "Moreover, mortgage rates remain low and the HMI index measuring future sales expectations has been over 70 for the past two months. These factors will sustain continued growth in the single-family market in the months ahead."

Derived from a monthly survey that NAHB has been conducting for 30 years, the NAHB/Wells Fargo Housing Market Index gauges builder perceptions of current single-family home sales and sales expectations for the next six months as "good," "fair" or "poor." The survey 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.

Two of the three HMI components posted losses in October. The component gauging current sales conditions dropped two points to 69 and the index charting buyer traffic fell one point to 46. Meanwhile, the index measuring sales expectations in the next six months rose one point to 72.

Looking at the three-month moving averages for regional HMI scores, the West increased two points to 75 while the Northeast, Midwest and South each posted one-point gains to 43, 56 and 65, respectively.