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Daily News

Builder Sentiment Cools Further In December
Dec 20, 2005
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Confidence of single-family home builders slid further this month from its summer peak, yet remained well within the positive range, according to the National Association of Home Builders/Wells Fargo Housing Market Index (HMI) for December. The overall HMI declined four points from a slightly revised November number to 57, while the component measuring builder expectations for future sales held firm at 65.

"Many builders sense some tapering off of single-family buyer demand, but remain reasonably confident in the ongoing strength of their markets," said NAHB President Dave Wilson. "They obviously are reacting to higher interest rates and energy costs, along with some buyer resistance to high house prices."

"As expected, the housing market appears to be coming off the recent record pace of home sales," said NAHB Chief Economist David Seiders. "Our surveys indicate that three out of every four builders are experiencing some buyer resistance to current home prices, and many are offering certain concessions to buyers in order to help maintain sales volume. NAHB's forecast continues to anticipate an orderly cooling down process for single-family sales and production in 2006."

The NAHB/Wells Fargo HMI gauges builder perceptions of current single-family home sales and sales expectations for the next 6 months as either "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.

The overall HMI declined from 61 to 57 in December--its lowest level since April of 2003, when it stood at 55. The components for current sales and traffic of prospective buyers were each down this time around, by four points to 63 and seven points to 39, respectively. However, the component gauging builder expectations for the next 6 months held firm at 65.

Builder confidence declined across every region in December. The Northeast and South registered only marginal, two-point declines to 59 and 66, respectively, while the exceptionally strong West showed an uncharacteristic seven-point decline to a still-solid 74. In the Midwest, where unusually wet weather and a weak job market were challenges, another four-point decline brought that region’s HMI score down to 33.

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