Builders continued growing more confident in the market for new single-family homes in May, according to the National Association of Home Builders/Wells Fargo Housing Market Index (HMI), released by NAHB Monday.
The HMI rose two points to 16 this month, NAHB reported, which was in line with expectations on Wall Street. Still, the index remains mired well below the reading of 50 that indicates as many builders view the market positively as negatively.
"The fact that the May HMI continued to tick up from April's five-point increase provides confirming evidence that the improved confidence level was no fluke," said David Crowe, NAHB's chief economist. "This continued increase indicates that home builders feel we're at or near the bottom of the market and that positive signs lie ahead for builders and potential home buyers, provided that builder access to production credit significantly improves."
"Builders are responding to what they perceive to be some of the best home buying conditions of a lifetime," said NAHB Chairman Joe Robson, a home builder from Tulsa, Okla., referring to affordability, low mortgage interest rates and the availability of first-time home buyer tax credits.
Crowe lauded the recent decision by the Department of Housing and Urban Development that would enable home buyers to use the new $8,000 tax credit at closing. "We appreciate Secretary Donovan's efforts to make the tax credit more useful to buyers by addressing the biggest hurdle to first-time purchasers--having enough cash for a suitable down payment," he said.
Two of three of the HMI's component indices rose in May, with the index gauging current sales conditions up two points to 14 and the index gauging sales expectations for the next six months up three points to 27. The index gauging traffic of prospective buyers remained unchanged, at 13.
Regionally, the Northeast gained three points to 18, the South rose one point to 18, the West was up four points to 12 and the Midwest was flat at 14.
The rise was taken as good news on Wall Street, where home builder stocks, mostly up before the 1 p.m. NAHB HMI release, moved up further. Carl Reichardt, senior analyst at Wachovia, put out a research note pointing out that 1) builders nealy always view current traffic less positively than sales conditions, 2) Wachovia's monthly neighborhood watch survey of 150 sales managers for April suggested "material improvement" in sales activity, and 3) the relative optimism shown by the HMI and in the earnings reports from the public home builders "continues to support improving selling conditions independent of time of year."
Concluding his note, Reichardt wrote, "While admittedly it may still be too early to determine a "real" industry bottom for housing, we are increasingly more confident that the worst of selling conditions at least for the new home industry, may finally be behind us."