US home builder confidence index jumps 8 points in June

17 June 2013 17:45  [Source: ICIS news]

WASHINGTON (ICIS)--Market confidence among US home builders this month made the biggest one-month gain in more than ten years, a key survey said on Monday, a sign that the sometimes uneven housing recovery is showing renewed strength.

The National Association of Home Builders (NAHB) said that its survey of housing contractors in June - known as the housing market index (HMI) - showed an eight-point gain, rising to 52.

“This is the first time the HMI has been above 50 since April 2006,” said NAHB chairman Rick Judson.

April 2006 was one of the last strong months for new home construction before the housing market bubble began to collapse in the middle of that year.

Judson said that “surpassing this important benchmark reflects the fact that builders are seeing better market conditions as demand for new homes increases”.

The eight-point jump in the June HMI was the largest one-month advance since September 2002, NAHB noted. 

That period marked the beginning of what would become the US housing boom of 2003-2006, with monthly construction of new single-family homes and multi-family apartment units often reaching or exceeding an annualised pace of 2m units.  

NAHB chief economist David Crowe said that the June index reading of 52 “is consistent with our forecast for a 29% increase in total housing starts this year, which would mark the first time since 2007 that starts have topped the 1m level”.

The HMI is a compilation of three subsidiary measures: home builders’ current sales of single-family homes; the number of prospective home buyers visiting model homes; and contractors’ expectations for home sales over the next six months.

On the 1-100 HMI scale, a reading of 50 or above indicates that home builders are confident about their prospects over the next six months.

During the US housing boom years of 2002-2005, the index had held steady in the mid-60s and even topped 70 at times.

At the bottom of the US 2008-2009 recession, the HMI hit an all-time low of 8 in January 2009.

After bouncing around in the middle teens for the rest of 2009 and through most of 2010 and 2011, the HMI measure of builder confidence began an apparent recovery in early 2012 but then seemed to peak at 47 in December-January and then dipped to 41 in April this year.

The June index of 52 marks a renewed upturn in market confidence and outlook.

Crowe said that the June advance in the HMI reflects an increasing number of serious buyers visiting home builders’ housing development projects, including prospective buyers that have given up looking for an existing home purchase because of newly tight inventories in that segment of the market.

In addition, he said, “Some of the head winds have weakened, particularly in building material prices that have come back from peaks seen in the boom when building was twice as large as it is now”.

Wholesale prices for lumber products used in housing construction have fallen by as much as 10% in recent months.

And while the average US home mortgage interest rate has undergone some increases in recent weeks, Crowe noted that the current 30-year fixed-rate mortgage interest of around 4% is still low by historic standards.

The housing market, especially new home construction, is a key downstream consuming sector for chemicals and resins.

Paul Hodges studies key influences shaping the chemical industry in Chemicals and the Economy

By: Joe Kamalick
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