U.S. home builder confidence surges in September, upward momentum likely to continue throughout 2016

The NAHB/Wells Fargo Housing Market Index showed that the U.S. home builder sentiment surged in September by 6 points to 65, the highest HMI level since October 2015. The increase was widespread as builder confidence increased throughout all regions and components. The August reading was downwardly revised to 59. The six-point jump marks the biggest monthly rise over the past year.

“As household incomes rise, builders in many markets across the nation are reporting they are seeing more serious buyers, a positive sign that the housing market continues to move forward. The single-family market continues to make gradual gains and we expect this upward momentum will build throughout the remainder of the year and into 2017”, said NAHB Chairman Ed Brady.

NAHB Chief Economist Robert Dietz stated that given the ongoing tightness in the inventory of new and existing homes, builders are positive that if that could construct more homes then they can sell them. Dietz mentioned that even if strong job creation and low interest rates are also boosting demand, builders continue to be hampered by supply-side constraints that include shortages of labor and lots.

All the three index components indicated gains in September. The component gauging current sales expectations increased by six points to 71, while the measure showing sales expectations in  the next six months rose  by 5 points to 71. The sentiment of traffic of prospective buyers recorded a four-point gain to 48.

Region wise, all regions recorded a rise in September. In particular, the West registered a strong gain, as sentiment rose sharply by 14 points to 82, the highest since 2015. Low mortgage rates, tight inventories and solid job and income growth continue to underpin home sales.

“The big 6-point rise in the NAHB index may signal some easing in supply constraints at smaller builders, which have been weighing on the overall index”, noted Wells Fargo.