Robust buyer demand brought on by improving economic conditions, low mortgage rates, and strong house-price performance boosted builder confidence in the U.S. market for new single-family homes to its highest level of the year in October, according to the latest National Association of Home Builders/Wells Fargo Housing Market Index (HMI). The HMI rose five points to 72 in October, more than offsetting a 4-point decline in September and equaling its year-ago reading.
"Rates on long-term mortgages have averaged well below 6 percent for many weeks now, and adjustable-rate loans have been around 4 percent -- providing a powerful incentive to buy a home," noted Bobby Rayburn, NAHB president.
"Another factor that's undeniably contributing to builder optimism is the large turnout of prospective buyers at model homes and sales offices," noted NAHB Chief Economist David Seiders. "The HMI component gauging traffic of prospective buyers has remained above 50 since May, which is a strong run for that index and a positive sign for potential sales activity."
The NAHB/Wells Fargo HMI is derived from a monthly survey of builders that NAHB has been conducting for nearly 20 years. Home builders are asked to rate current sales of single-family homes, and prospects for sales activity in the next six months, as "good," "fair," or "poor." They are also asked 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 sales conditions as good than poor.
Each of the HMI's component indexes rose in October, with the largest gains registered for current sales activity (up five points to 78) and expected sales in the next 6 months (up a remarkable nine points to 84). The component gauging traffic of prospective buyers rose two points to 54.
"We're headed for another record year for new-home sales in 2004, and the long-term outlook is still very encouraging," said Mr. Seiders. "Most builders are looking forward to a healthy marketplace moving into 2005."
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