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Builder Confidence Strengthens in May

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Builder Confidence Strengthens in May

Builder confidence in the market for newly built, single-family homes improved three points to a 44 reading on the NAHB/Wells Fargo Housing Market Index (HMI) for May, released this Wednesday. The gain was from a downwardly revised 41 reading in April, and reflected improvement in all three index components. Specifically, the component gauging current sales conditions increased four points to 48, the component gauging sales expectations for the next six months edged up a single point to 53 – its highest level since February of 2007 -- and the component gauging traffic of prospective buyers gained three points to 33.

In general, 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. This is seen as an encouraging sign, even as concerns related to costs and supplies of building materials, lots and labor are rising in some markets. Commenting on the latest survey findings, NAHB Chief Economist David Crowe noted that, “While industry supply chains will take time to re-establish themselves following recession-related cutbacks, builders’ views of current sales conditions have improved and expectations for the future remain quite strong as consumers head back to the market in force."

Drilling down to the regional picture, three-month moving averages of HMI scores didn't budge this time around for the Northeast, Midwest or South, which held unchanged at 37, 45 and 42, respectively. Only the West recorded a decline, of six points to 49 in May.

Housing Starts Slipped, But Permits Rallied in April

A correction from an unsustainably high level of production on the volatile multifamily side was largely responsible for a 16.5% dip in nationwide housing starts to a seasonally adjusted annual rate of 853,000 units in April, according to data released this week by HUD and the U.S. Census Bureau.
However, permits for new construction headed solidly higher in the month, with a particularly strong gain in multifamily issuance. NAHB Chief Economist David Crowe noted that, along with new permits, permits that had been issued but not yet used rose in April, which is a good indicator that the dip in building activity was likely a "temporary pause" due partly to unseasonably poor weather conditions. While single-family starts posted a modest, 2.1% decline to a seasonally adjusted annual rate of 610,000 units, multifamily starts posted a 38.9% decline to 243,000 units for the month.
  • Combined starts activity was down 12.8% in the Northeast,
  • 27.9% in the South and
  • 6.2% in the West, but increased
  • 10.9% in the Midwest.
At the same time, permit issuance, which can be an indicator of future building activity, gained 14.3% to a seasonally adjusted annual rate of 1.02 million units. That's the fastest pace since June of 2008. The increase reflected a 3% gain to 617,000 units on the single-family side and a 37.5% gain to 400,000 units on the multifamily side. Beyond that, three out of four regions posted double-digit permit gains in April:
  • the Midwest had a 22.3% increase,
  • the South a 16% gain and
  • the West a 12.9% improvement.
  • The Northeast posted a 2% decline.
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  • Joanne Loftus
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