Homebuilder Confidence Rises for First Time in Months

Homebuilder confidence unexpectedly rose in October, climbing three points to 16 on the National Association of Builders/Wells Fargo Housing Market Index (HMI) -- the first increase since May.

A Bloomberg survey had expected the index to rise to 14 in October from 13 in September. Readings over 50 indicate that more builders view sales conditions as good than poor. The index was at 13 in August and 14 in July. A year ago, in October 2009, the index was at 17. It hit an all-time low of eight in January 2009 and an all-time high of 72 in June 2005.

All Three Index Components Rise

All three of the index's components rose in October. The component gauging current sales conditions was up three points to 16, the six-month sales expectations component jumped four points to 23, and the traffic of prospective buyers component climbed two points to 11.

What's more, regionally, HMI results also rose in every section of the United States. Builder confidence rose four points in the South to 18, increased four points in the West to 12, and rose a point each in the Northeast and Midwest to 17 and 13, respectively.

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David Crowe, NAHB chief economist, said now that the home buyer tax credit has ended, the slight uptick in homebuilder confidence points to a belief that at least some potential home buyers have started to look more favorably on a home purchase decision.

"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," Crowe said in a statement. "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."

Crowe added that, "the toughest obstacles really come down to financing -- the scarcity of construction credit for builders, along with tougher mortgage requirements for consumers."

Housing Sector Now Has a Pulse

October's homebuilder confidence report confirms the sector has a pulse. True, the index is still well below healthy levels that would signal strong activity -- the index has been below the 50 good/poor conditions demarcation line since April 2006 -- but the uptrend has to start somewhere.

Still, economists and real estate officials are quick to point out that the housing sector's fate will likely hinge on the U.S. economy's ability to add jobs and lower unemployment. That's because, historically, low home prices and attractive mortgage rates have not been enough to create a period of sustained growth in home sales, and by extension, in home building. Prospective home buyers have to feel that their jobs are secure -- which underscores the importance of a strong job market.