Home Builder Confidence Sinks in December

With mortgage rates falling or remaining stable, buyers should be jumping back into the market shortly, gobbling up houses and placating sellers and builders.

But tell that to the home builders themselves.

The National Association of Home Builders/Wells Fargo Housing Market Index dropped slightly in December compared to November and was substantially lower compared to the index in December 2005.

Based on a monthly survey that measures builder perceptions and expectations for home sales, the index dropped to 32 in December, compared with 33 in November and 57 in December 2005. An index rating above 50 indicates that more builders view sales conditions as good, while a rating below 50 indicates that more builders view conditions as poor.

Builders are asked whether their perceptions of current single-family home sales and sales expectations for the next six months are either “good,” “fair” or “poor,” and also asks builders to rate the volume of prospective buyers as “high to very high,” “average” or “low to very low.” The index is based on these builder ratings.

The index was 57 in January and fell in February through September to a rating of 30 in September. The index improved in October and November before falling in December.

NAHB chief economist David Seiders said in a statement:

“The HMI has come off September’s low point, and other recent indicators confirm that buying conditions have improved and that demand is stabilizing - including improvements in measures of housing affordability, strengthening consumer assessments of home-buying conditions and an upswing in applications for mortgages to buy homes.

Builders sense that the tide is turning in terms of buyer demand for their product and are feeling somewhat better about the prospects for home sales.”

It’s a sentiment shared by sellers across the country. As prices come down and rates remain low, there’s a good chance mortgage loan applications will increase again.