NAHB/Wells Fargo Housing Market Index: Builder Confidence Falls in July

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July 21, 2008

NAHB/Wells Fargo Housing Market Index: Builder Confidence Falls in July

Builder confidence in the market for newly built single-family homes fell for a third consecutive month in July, according to the National Association of Home Builders/Wells Fargo Housing Market Index (HMI). The HMI fell below its previous record low of 18 in June to a new record low of 16 in July, with each of its three component indexes also hitting record lows.

“Builders are reporting that traffic of prospective buyers has fallen off substantially in recent months,” said NAHB Chief Economist David Seiders. “Given the systematic deterioration of job markets, rising energy costs and sinking home values aggravated by the rising tide of foreclosures, many prospective buyers have simply returned to the sidelines until conditions improve.”

Each of the HMI’s component indexes fell to new record lows in July. The index gauging current sales conditions declined one point to 16, the index gauging sales expectations in the next months fell four points to 23, and the index gauging traffic of prospective buyers also receded four points, to 12.

All but one region showed declines in builder confidence in July. The Midwest declined six points to 10, its lowest HMI score since the regional detail was introduced in December of 2004, while the West matched a record low set in January 2008 with its three-point decline to 13. The South posted a one-point decline to 20. The Northeast was the only region to post a gain in July’s HMI, rising two points to 14 from the previous month’s record low of 12.

Derived from a monthly survey that NAHB has been conducting for more than 20 years, the NAHB/Wells Fargo HMI gauges builder perceptions of current single-family home sales and sales expectations for the next six months as “good,” “fair” or “poor.” The survey also asks builders 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.

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