Low mortgage rates, improved economy driving year-end level of home builders' confidence

CONTINUING low mortgage rates and improving economic conditions at the end of 2004 were helping maintain a solid level of builder confidence in the market for new single-family homes, according to the information from the National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index (HMI).

The November 2004 HMI registered no discernible change in builder attitudes following a four-point jump that brought the index in line with its highest level of the year at 71 in October.

“While rates on long-term mortgages have edged up marginally in the last few weeks, the average 30-year loan remains below 6 percent,” says NAHB President Bobby Rayburn. “That's a key factor driving buyer demand right now.”

“The basic story hasn't changed,” agreed NAHB Chief Economist David Seiders. “As of the end of October, the average interest rate on a 30-year mortgage was 5.64 percent. That moved up slightly to 5.76 percent as of mid-November — still an exceptionally attractive rate. The result is builders' continued confidence in the momentum of this housing market.”

Sales of new single-family homes rose to a seasonally adjusted annual rate of 1.226 million units in October, 7.4 percent above the sales pace of October 2003.

The NAHB/Wells Fargo Housing Market Index (HMI) is derived from a monthly survey of builders that NAHB has been conducting for nearly 20 years. Each month, builders report current sales of single-family homes and prospects for sales in the next six months as either “good,” “fair” or “poor.” They also rate traffic of prospective buyers as “high to very high,” “average” or “low to very low.”

Scores for each component are then used to calculate a seasonally adjusted index where any number over 50 indicates that more builders view sales conditions as good than poor.