The National Association of Home Builders Housing Market Index (HMI) for October showed its first improvement since June as builders began to see a flicker of improvement in consumer interest in new homes.
The HMI, released Monday, rose three points to 16 , and all three of its component indices also rose. The current sales conditions index moved up by three points, also to 16; the sales expectations index for the next six months jumped five points to 23 and the buyer traffic index was up two points to 11. Analysts were expecting a reading of 14.
Moreover, confidence improved across every region in October. The South and West each posted four-point gains, to 18 and 12, respectively, while the Northeast and Midwest each posted single-point gains, to 17 and 13, respectively.
"The new-homes market is finally moving past the lull that occurred when the home buyer tax credits expired and economic growth stalled this summer," said NAHB Chief Economist David Crowe. "While challenges such as competition from foreclosures, inaccurate appraisal values, and general consumer uncertainty about the economy and job market continue to be major factors, builders have seen a slight increase in consumers who are considering a home purchase. The toughest obstacles really come down to financing--the scarcity of construction credit for builders--along with tougher mortgage requirements for consumers."
An index of 50 is the separation point with reading over 50 considered positive and anything under negative. The index has remained below 50 since spring of 2006.
Wells Fargo Analyst Carl Reichardt wrote in a research note, "At 23, the "Single-Family Sales: Next 6 Months" is the highest component among the three subindexes and also showed the largest sequential change, indicating to us that a reasonable portion of the rise in the HMI this month is based upon expectations and not necessarily current sales trends. We believe new home builders may benefit from the foreclosure freeze by several large banks and perhaps the improvement in expectations this month is a function of that. Still, this uptick represents some good news for the sector, and while only one data point, the HMI has historically been a good leading indicator of homebuilding stock direction."