Homebuilder Confidence Increases 4 Points In November

U.S. homebuilders are experiencing an increase in overall confidence this month especially now they’re seeing an increase in homebuyer traffic through their model homes.

Based on the National Association of Home Builders/Wells Fargo Housing Market Index (HMI), builder sentiment in the single-family housing market increased 4 points to a level of 58, wherein beyond 50 points is already considered positive.

“Low interest rates, affordable home prices and solid job creation are contributing to a steady housing recovery,” said David Crowe of National Association of Home Builders Chief Economist. “After a slow start to the year, the HMI has remained above the 50-point benchmark for five consecutive months, and we expect the momentum to continue into 2015.”

Homebuilder confidence dropped during this year’s first despite higher home prices, weaker consumer confidence and tight inventory. Most of the biggest public homebuilders claim that they were too aggressive with their pricing last year so this fall, they tried to solve this. Hence, the median price of newly constructed homes sold last month was 4 percent lower than it was in the same period last year.

Aside from this, the three components of the HMI also witnessed an increase this month: current sales conditions jumped 5 points to 62, future sales expectations rose 2 points to 66 and buyer traffic leaped 4 points to 45, currently the only component still on the negative side.

“Growing confidence among consumers is what’s fueling this optimism among builders,” said Kevin Kelly, Chairman of NAHB, a homebuilder and developer from Wilmington, Delaware. “Members in many areas of the country continue to see increasing buyer traffic and signed contracts.”

One possible reason behind the increase in buyer traffic in new model homes is the brief sharp drop of mortgage interest rates at the end of October. Aside from this, there is also a shortage in the supply of existing homes for sale. Sales of newly built homes in September were 17 percent higher than they were in 2013.