The NAHB’s Housing Market Index rose for the fifth consecutive month in September, mainly on the strength of new prospective business for builders.

By Peter Ricci

National Association of Home Builders/Wells Fargo Housing Market Index rose for the fifth consecutive month in September, rising three points and reaching its highest level since June of 2006.

A measure of builder confidence in the newly-built, single-family home market, the Housing Market Index’s increases have accompanied some of the best construction statistics in years.

Housing Market Index – Positive Across the Board

The Housing Market Index is derived from a monthly survey that the NAHB has been conducting for 25 years, and it builder perceptions on single-family home sales, sales expectations for the next six months and the traffic of prospective buyers. Some of the index’s other findings included:

• All three components of the Housing Market Index were positive in September, with sales conditions increasing four points to 42, traffic of prospective homebuyers rising one point to 31, and, perhaps most promisingly, the component for sales prospect rose eight points to 51.
• Overall, the Housing Market Index was at a level of 40 in September; any number over 50 indicates that more homebuilders view sales conditions as good rather than poor, which lends that much more importance to the prospective sales measure.
• Builder confidence was also up in every region, rising five points in the Midwest and West to respective levels of 40 and 43, and four points and two points for the South and Northeast, which are currently at 36 and 30.

David Crowe – Cautious Optimism

In comments accompanying the Housing Market Index, NAHB Chief Economist David Crowe said that though builders are certainly expressing a greater level of optimism, there are some warning signs on the horizon.

“The amount of consumer traffic [builders] are seeing through model homes than they have in more than five years,” Crowe said. “However, against the improving demand for new homes, concerns are now rising about the lack of building lots in certain markets and the rising cost of building materials. Given the fragile nature of the housing and economic recovery, these are significant red flags.”

As we noted in our coverage of existing-home sales, though, housing inventory levels continue to stabilize and offer more opportunities for homebuilders; will those opportunities be enough to offset the “red flags” that Crowe raises? We shall see!