Builders grew more confident in the market for new single-family homes in April, according to the latest National Association of Home Builders/Wells Fargo Housing Market Index, released Wednesday afternoon.
The April HMI ticked up by five points, its largest one-month increase since May of 2003, to 14, the highest level the index has reached since last October. Analysts were expecting a much more modest rise to 10. The news fueled a rally in builder stocks set off by comments earlier in the day by Carl Reichardt of Wachovia Securities that he expected a short-term rally in the group. Nearly the entire group was up, with Standard Pacific (NYSE:SPF), which Reichardt said was, with D.R. Horton, poised to beat order forcasts, in the lead with a gain of more than 30% in mid-afternoon trading. M/I Homes, which has been significantly shorted, was up 18%. Likewise Beazer, which was up 14%, Hovanian, which was up 11%. Lennar was holding a 10% gain, with the rest of the group in the low to mid single digits.
Still, any reading below 50 in the HMI reflects a negative view of the market. But the NAHB took the jump as good news. "This is a very encouraging sign that we are at or near the bottom of the current housing depression," said NAHB Chief Economist David Crowe. "With the prime home buying season now underway, builders report that more buyers are responding to the pull of much-improved affordability measures, including low home prices, extremely favorable mortgage rates and the introduction of the $8,000 first-time home buyer tax credit."
But the NAHB economist warned that builders are still having trouble obtaining construction financing, without which they will eventually exhaust home-building cash and perish. "Restoring health to our nation's economy will require a substantial housing recovery, and that recovery is contingent on breaking the logjam in AD&C [acquisition, development and construction] lending that presents an ever-increasing obstacle for home builders," he said.
Each of the HMI¹s component indexes recorded gains in April, with a 10-point surge to 25 in the component gauging builder sales expectations for the next six months; a five point gain 1o 13 in the index gauging current sales conditions; and a five point gain to 14 in the index gauging traffic of prospective buyers.
The HMI rose 8 points to 16 in the Northeast, 6 points to 14 in the Midwest,5 points to 17 in the South and 4 points to 9 in the West.