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Builder
Confidence Moderates,
But Remains Strong
in Rising
Rate Environment
Area
builders remain confident
in the single-family
detached housing market
even in the face of
rising interest rates,
however they have moderated
their optimism in recent
months. The Housing
Market Index reading
was 59 for June, an
11-point decline from
May’s
reading. The HMI reached
a peak in April registering
a highly optimistic
76 reading. |
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June
HMI
Reports |
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Full
June Report
- PDF
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No
single component of
the index was responsible
for
the decline. Readings
for current sales (64),
expected
sales (69) and traffic
(44), the three components
that make up the index,
each fell 10 points.
Traffic readings fell
below the
neutral level of 50
for the first time since
February.
Readings below 50 indicate
weakness in optimism,
while readings above
50 suggest
strengthening confidence.
For
many months professionals
associated with the building
industry have known of
an impending rise in interest
rates, but previous confidence
levels were buoyed by
the historically low rates.
Now that rates have moved
up significantly in the
last few months and it
is clear that rates will
not return to previous
lows, it appears the industry
is preparing itself for
the next economic cycle.
HMI
readings for expected
sales conditions during
the next
six months remain above
readings for current sales
conditions. This suggests
that although builders
may be moderating their
overall level of bullishness
in the market, they are
not signaling any significant
expected weakness.
The
10-point drop in current
conditions marks that
component’s
lowest reading since February.
The expected conditions
component reached its lowest
reading since last November.
Interestingly, although
expected conditions have
measured higher than current
conditions for 13 consecutive
months, the spread between
current and expected conditions
has narrowed in recent
months. In January and
February the spread reached
as high as 22 points after
averaging closer to 10
points for many months.
In April the two components
were even at 81 and for
the last two months the
two have differed by only
five points. Not since
last September has the
spread been this narrow.
The
Home Builders Association
began collecting housing
market index data last
June which allows us to
begin comparing year ago
periods to current surveys.
The June 2004 reading
of 59 was five points below
the 64 reading taken last
June. Current conditions
are off four points, while
expected conditions are
down six points from June
03’s
reading of 75. Traffic
is down four points from
48 one year ago.
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