Behind the Numbers: Builders’ Better State
By Sarah Portlock and Alan Zibel

It may be hard to believe, but the nation’s home builders have had four straight upbeat months.
Home builders’ confidence rose two points in August, marking yet another sign of the housing market’s stabilization — one of the positive developments in the economy in recent months. The National Association of Home Builders said Wednesday its housing market index rose two points to 37 this month, the highest level since February 2007.

But the index is still below historical levels. A reading above 50 in the NAHB index would mean that more builders view conditions as good rather than poor. The gauge hasn’t been in positive territory since April 2006. At the height of the building bubble, readings were in the high 60s and low 70s.

All three components of the index rose in August. Builders’ expectations for traffic from potential buyers and current sales conditions both rose by three points, and expectations for sales over the next six months rose one point.

The housing market was one of the weakest parts of the economy in recent years during the historic bust. It has now turned positive amid a tenuous economic recovery.

Spending on home construction, home improvements and other parts of real-estate transactions have added to economic growth for five straight quarters, accounting for 0.22 percentage point of the 1.5% growth rate in the first quarter.
Here’s what industry analysts think:

Joshua Shapiro, economist, MFR: “These recent results would seem…to point to sharp gains in single-family housing starts, something that so far has not occurred. The next few months will be critical in determining to what degree home builders follow their more optimistic talk with action. While some continued improvement in starts is possible, we continue to believe that the massive supply overhang of existing homes will present brutal competition to the new-home market for the foreseeable future, and therefore it is unlikely that single-family housing starts will make sharp gains from current rates anytime soon.”

Stephen East, builder analyst, ISI Homebuilding Research: “We view this morning’s release as a positive, particularly so given that this is a survey of primarily smaller builders, which have lagged the larger builders…Historically, these increases have been short lived and we expect that reaction again as investors await the important housing starts data released tomorrow morning.”