Builder Confidence Stays Strong

WASHINGTON – Builder confidence in the market for new single-family homes remains sturdy amidst a handful of generally weak economic indicators, according to the results of the National Association of Home Builders' Housing Market Index, released Jan. 17. The monthly gauge of builder sentiment dropped a single point from December's two-year high to a reading of 64 in January.

"Builders are pleased with the way the market for new homes in most price ranges is holding up at this time," explained Gary Garczynski, NAHB president and a home builder/developer from Woodbridge, Va. "Favorable interest rates on home mortgages and solid house-price performance continue to lead more people to consider a new-home purchase, as evidenced by the higher traffic of prospective buyers through model homes this month. But lingering concerns about the economy are keeping builders' optimism in check, as the flattening of today's index represents."

The HMI is derived from a monthly survey of builders that NAHB has been conducting for nearly 20 years. Homebuilders are asked to rate current sales of single-family homes and sales expectations for the next six months as "good," "fair" or "poor." They are also asked to rate traffic of prospective buyers as either "high to very high," "average" or "low to very low." Scores for responses to each component are used to calculate a seasonally adjusted index, where any number above 50 indicates that more builders view sales conditions as good rather than poor.

January's HMI fell one point to 64, returning to November's solid level after hitting a two-year high of 65 in December. The component index gauging current sales activity dropped back to 69, still an historically high level but down three points from December's 72 reading. The index gauging sales expectations for the coming six months declined one point to 68, while the index gauging traffic of prospective buyers rose two points to 50 this month.

"Builders had an exceptionally good year in 2002, breaking all previous records for new-home sales with a total of about 975,000, a number that does not even include custom homes built on owners' lots," stated NAHB Chief Economist David Seiders. "While we're expecting another very good year in 2003, some gradual settling of the market is likely as interest rates eventually firm up to some degree, and builders apparently share this view.
NAHB is currently projecting sales of 942,000 new homes in 2003, the second highest on record, and our forecasts do not yet factor in the impacts of the type of fiscal stimulus plan proposed by President Bush on Jan. 7."