August Home Builder Confidence Soars

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The National Association of Home Builders (NAHB)/Wells Fargo housing market index for September jumped six points to 65. The reading was higher than the consensus forecast of 60 from a Bloomberg survey of economists. This month’s reading is the highest since last October.

An index reading above 50 indicates that more builders view sales conditions as good than view them as poor. The six-point September gain came after the August reading was revised down from 60 to 59.

The current sales conditions sub-index for September rose from 64 to 67, and the sub-index that estimates prospective buyer traffic jumped four points, from 44 to 48. The sub-index measuring sales expectations for the next six months rose five points from 66 to 71.

The NAHB’s chief economist said:

With the inventory of new and existing homes remaining tight, builders are confident that if they can build more homes they can sell them. Though solid job creation and low interest rates are also fueling demand, builders continue to be hampered by supply-side constraints that include shortages of labor and lots.

In the NAHB’s regions, the three-month moving average index rose in three of four regions. In the West, the index rose four points to 73, one point to 64 in the South and one point to 42 in the Northeast. The index remained unchanged in the Midwest with a score of 55.

The Federal Reserve’s Open Market Committee (FOMC) starts a two-day meeting Tuesday morning, concluding with an announcement of the committee’s decision to raise the Fed’s policy rate. If the Fed’s decision is to raise rates (not expected, but who knows?) the higher policy rate also will raise mortgage rates. The current rate, as of late Monday morning, is 3.47% on a 30-year fixed rate mortgage.

The U.S. Census Bureau releases its report on August housing starts and home-building permits on Tuesday morning. Economists are expecting a drop in new housing starts from 1.21 million in July to 1.19 million in August. New building permits are forecast to rise from 1.15 to 1.17 million. Both estimates are seasonally adjusted annual rates (SAAR).

The NAHB/Wells Fargo housing market index has remained in the 60-point range since June of last year. Prior to mid-2013 the index had not risen to 50 since mid-2006.