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U.S. Builder Confidence Stabilizes in October
Oct 18, 2006
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Breaking a string of eight consecutive monthly declines, the National Association of Home Builders/Wells Fargo Housing Market Index (HMI), which gauges builder sentiment in the single-family housing market, posted a modest one-point gain to stabilize at a level of 31 in October.

“While the index remains at a low level, the single-point increase from September’s reading suggests that builder attitudes for new-home sales may be stabilizing,” said NAHB Chief Economist David Seiders. “This is attributable to several key economic factors: mortgage interest rates have fallen substantially from their summer highs, energy prices have dropped dramatically from their recent peaks, consumer sentiment has posted a strong rebound and the job market is doing reasonably well.”

“More than three out of four builders are offering substantial sales incentives to move their product and limit cancellations, and this aggressive strategy is working--making this an opportune time for home buyers to enter the market,” said NAHB President David Pressly. “The market correction appears to be approaching the bottom in terms of sales volume, and we expect the supply-demand balance to improve considerably before long.”

Derived from a monthly survey that NAHB has been conducting for 21 years, the NAHB/Wells Fargo HMI gauges builder perceptions of current single-family homes and sales expectations for the next 6 months as “good,” “fair” or “poor.” The survey also asks builders to rate traffic of prospective buyers as either “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 sales conditions as good than poor.

Two of the three component indexes increased in October, while one remain unchanged. The component that gauges current single-family home sales stayed constant at 32, while the component gauging expected sales in the next 6 months rose four points to 41. The component gauging traffic of prospective buyers edged up one point from last month, to 23.

The HMI posted gains in two regions and fell in two others in October. The HMI gained five points to 33 in the Northeast and registered a four-point gain to 20 in the Midwest. The largest decline was posted in the West, where decreased affordability and a major snap-back in investor activity resulted in a five-point drop to 32. The HMI fell one point to 37 in the South.

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