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| Builder Sentiment Slightly Improves |
| Written by Jonathan Smoke | |
| 08.18.2008 | |
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Discuss this article on the forums. (0 posts) The National Association of Home Builders released the NAHB/Wells Fargo Housing Market Index (HMI) for August today, and the new figures reflected some improvement, albeit relatively minor. The overall confidence measure remained at 16, a record low over its 23 year history, but two of its three components showed increases over their July readings. August posted a one-point rise in the index gauging current sales conditions while the index that tracks sales expectations increased two points. The third and final component of the index gauging traffic of prospective buyers remained unchanged. Clearly the view of current traffic impacts builders’ sentiment since the HMI index didn’t move and only the traffic reading was unchanged. Furthermore, our prior analysis indicates that big improvements in the monthly reading of traffic are correlated with the clear end of downturns. We saw a temporary spike in February of this year, but since then the best monthly changes have been the months like August that didn’t retreat. The builders have improved hopes for the future with the recent signing into law of Housing and Economic Recover Act of 2008. From the NAHB press release of today’s index: “With the passage of crucial housing legislation last month that created an attractive home buyer tax credit, there is a sense that home sales may soon be reaching a turning point,” noted NAHB President Sandy Dunn, a home builder from Point Pleasant, W.Va. “Builders are anticipating the stimulative effects of this legislation and are optimistic that the tax credit will give those buyers who’ve been sitting on the fence the reason they need to jump back into the market.”
For now, hope isn’t enough to make builders feel better—they need traffic. And what will generate that traffic? The tax credit, although complex, may help. If would-be buyers start to believe that home prices are not likely to decline further AND they start to understand that interest rates may indeed be higher in the future, pent up demand may be interested in leaving the sidelines. 
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