Lower Interest Rates Boost U.S. Builder Confidence in August
Aug 17, 2004
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Declining mortgage interest rates helped boost builders' confidence in the market for new single-family homes this month, according to the latest National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index (HMI). The HMI rose to 71 in August, up four points from July's revised number and equal to its year-ago level.

"Long-term mortgage rates fell to 6.05 percent in July, from 6.29 percent the previous month, then continued to fall in the beginning of August," said NAHB President Bobby Rayburn. "This undoubtedly helped push builder optimism to its highest level since October of 2003 as potential buyers who might have been sitting it out started diving back into the market when rates headed downward. With the ongoing favorable financing climate and solid house-price performance, we have good reason to expect continued strength in the housing market in the months ahead."

The NAHB/Wells Fargo HMI is derived from a monthly survey of builders that NAHB has been conducting for almost 20 years. Home builders are asked to rate current sales of single-family homes 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 responses to each component are used to calculate a seasonally adjusted index, where any number over 50 indicates that more builders view sales conditions as good than poor.

All three component indexes registered gains in August. The index gauging current single-family home sales rose two points to 76 -- its highest level since the 77 registered in April of this year. The index gauging sales expectations for the next 6 months rose four points to 78 -- its highest level since November of 2003, when it hit 81. And most impressively, the index gauging traffic of prospective buyers rose six points to its second-highest level in history, 57. This was just three points away from the traffic component‚s record 60 reading taken in May of 1999.

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