Here’s Why Home Builder Confidence Was Flat in August

According to the National Association of Home Builders, builder confidence in the market for newly built, single-family homes — the National Association of Home Builders/Wells Fargo Housing Market Index — was unchanged in August at a low level of 15.

“Builders continue to confront the same major challenges they have seen over the past year, including competition from the large inventory of distressed homes on the market, inaccurate appraisal values, and issues with their buyers not being able to sell an existing home or qualify for favorable mortgage rates because of overly tight underwriting requirements,” said Bob Nielsen, NAHB chairman and a home builder from Reno, Nevada.

Derived from a monthly survey that NAHB has been conducting for more than 20 years, the NAHB/Wells Fargo Housing Market Index 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 from 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.

Two out of three of the HMI’s component indexes posted gains in August. The component gauging current sales conditions gained one point to 16 – its highest level since March of this year – and the component gauging traffic of prospective buyers rose one point to 13 following two consecutive months at 12. However, the component gauging sales expectations for the next six months declined two points to 19, partially offsetting a six-point gain from the last month’s revised number. The numbers were still significantly lower than one would desire, despite any gains.

The regional HMI results were mixed in August, with the Northeast posting a four-point gain to reach 19 and the West registering a one-point gain to 15, while the South remained unchanged at 17, and the Midwest declined by two points to 10.