Home Builder Optimism Ebbs Somewhat in October

By October 16, 2013Economy

The National Association of Home Builders (NAHB) and Wells Fargo reported that the Housing Market Index (HMI) declined slightly from 57 in September to 55 in October. This was the second straight month of declines in this measure. On the positive side, it was the fifth consecutive month with the HMI above the threshold of 50, the level at which more builders were optimistic than pessimistic in their outlook. Indeed, the longer-term trend for builder confidence is more upbeat, with the HMI up from 17 in October 2011 and 41 in October 2012.

Yet, the recent dip in the builder sentiment is also notable, and it mirrors the pullback in larger housing construction and sales figures. While we will not get new residential starts and permits data tomorrow due to the government shutdown, the most recent data have reflected a modest decline since the spring months. The NAHB estimates that housing starts would have been between 875,000 and 900,000 in September. This would be similar to the August figure of 891,000, which was below the one million mark achieved in March.

Higher borrowing costs and the current political stalemate were behind the lower figures. NAHB Chief Economist David Crowe said, “A spike in mortgage interest rates along with the paralysis in Washington that led to the government shutdown and uncertainty regarding the nation’s debt limit have caused builders and consumers to take pause.” He went on to suggest that he expected residential activity to pick up again in the coming months, particularly with historically-low interest rates and continued pent-up housing demand.

The August data, though, did reflect lower levels of home builder confidence in each region of the country. The largest declines in sentiment were seen in the Northeast. The good news was the single-family sales over the next six months are expected to be strong, albeit at a slower pace than a couple months ago. The index of expected single-family sales has declined from 68 in August to 64 in September to 62 in October.

Chad Moutray is the chief economist, National Association of Manufacturers.

Chad Moutray

Chad Moutray

Chad Moutray is chief economist for the National Association of Manufacturers (NAM), where he serves as the NAM’s economic forecaster and spokesperson on economic issues. He frequently comments on current economic conditions for manufacturers through professional presentations and media interviews. He has appeared on Bloomberg, CNBC, C-SPAN, Fox Business and Fox News, among other news outlets.
Chad Moutray

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