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Builder Confidence Rises Five Points in Latest Reading

Builder Confidence Rises Five Points in Latest Reading
Builder confidence in the market for newly built, single-family homes posted a solid, five-point gain to 46 on the NAHB/Wells Fargo Housing Market Index (HMI) for November, released on the Monday prior to Thanksgiving. This marks the seventh consecutive monthly gain in the confidence gauge and brings it to its highest point since May of 2006. The index is also fast approaching the critical 50 midpoint, at which an equal number of builders report that conditions are good versus poor.

Two out of three of the HMI’s components registered gains in the latest reading; the component gauging current sales conditions rose eight points to 49 – its highest mark in more than six years -- while the component measuring sales expectations for the next six months rose two points to 53 and the component measuring traffic of prospective buyers held unchanged at 35 following a five-point gain in the previous month.

Also, all four regions posted gains in their HMI three-month moving averages as of November. The South registered a four-point gain to 43, while the Midwest and West each posted three-point gains, to 45 and 47, respectively, and the Northeast posted a two-point gain to 31. In all, builders reported increasing demand for new homes as inventories of foreclosed and distressed properties have shrunk in many markets.

New-Home Sales Holding Steady Since This Summer

Sales of newly built, single-family homes took place at a seasonally adjusted, annual rate of 368,000 units in October, virtually unchanged from a downwardly revised pace in the previous month, according to figures released by HUD and the U.S. Census Bureau this past week. The latest data indicates that new-home sales have been running at a fairly steady pace since summer, and indicate a 17% year-over-year improvement from October 2011 to October 2012.

The Midwest posted a 62.2% gain following a big dip in the previous month and the West posted a solid 8.8% increase, while the South and Northeast posted declines of 11.6% and 32.3%, respectively – the latter of which was likely impacted by storm preparations. NAHB Chief Economist David Crowe noted that the latest numbers are "right in line with our forecast, which projects that sales will resume a slow, upward trajectory going forward and will end 2012 about 20% ahead of 2011.” The government data also noted that the inventory of new homes for sale rose marginally to a still-slim 147,000 units in October, which is a 4.8-month supply at the current sales pace.

Housing Production Increased in October

Government data released on Nov. 20 reveal that nationwide housing production rose 3.6% to a seasonally adjusted annual rate of 894,000 units in October. That's the fastest pace of new-home construction since July of 2008, and is right in line with NAHB's expectations for modest month-to-month growth. Breaking down the data, single-family housing starts were virtually unchanged at 594,000 units in October, while multifamily production posted an 11.9% gain to 300,000 units – its best pace since July of 2008.

On a regional basis, overall housing starts rose 17.2% in the West and 8.9% in the Midwest while posting a storm-related decline of 6.5% in the Northeast and 2.5% in the South. In the same month, permit issuance -- which can be a harbinger of future building activity -- fell 2.7% to a seasonally adjusted annual rate of 866,000 units. This decline was focused in the apartment sector, with multifamily permits down 10.6% from an unusually high September level to 304,000 units, as single-family permits rose 2.2% to 562,000 units.

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  • Joanne Loftus
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