How High Is Confidence Among the Housing Industry?

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The Federal Reserve’s unprecedented monetary actions in recent years have boosted certain areas of the economy. Specifically, the housing industry has enjoyed record low interest rates and rapidly appreciating prices. Many Americans are skeptical about the sustainability of this rebound, but homebuilders remains positive.

After improving to its best level since August, the National Association of Home Builders/Wells Fargo’s index of builder confidence edged just one point lower to 56 this month, compared to a December reading of 57. More builders have now viewed market conditions as good than poor for eight consecutive months. Any reading above 50 indicates that more builders view sales conditions as good rather than poor. In the five years before the Great Recession, the index averaged 54, and hit an all time low of 8 in early 2009.

“Following an unexpected jump last month, builder confidence has essentially leveled out and is holding at a solid level,” said NAHB Chair Rick Judson, a home builder from Charlotte, N.C. “Many markets continue to improve and this bodes well for future home sales.”

Despite issues with home affordability, the NAHB believes several factors will continue to keep the housing recovery in tact. “Rising home prices, historically low mortgage rates, and significant pent-up demand will drive a continuing, gradual recovery in the year ahead,” said NAHB Chief Economist David Crowe. “However, the pace of the recovery could be stronger were it not for rising construction costs and inaccurate appraisals that are keeping some home sales from going through.”

The NAHB/Wells Fargo Housing Market Index gauges builder perceptions in three areas of the real estate market, all of which declined in January. The reading for current sales conditions dipped 1 point to 62, while sales expectations for the next six months fell 2 points to 60. The component gauging buyer traffic dropped 3 points to 40.

Looking at the three-month moving averages for regional HMI scores, the South held steady at 56, while the Midwest slipped one point to 58. The Northeast and West each jumped 4 points to 42 and 63, respectively.
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