Home builders remain optimistic about 2005

The index for January was 70, down one point from December, but the same as the average monthly level for the final quarter of 2004, which was the strongest period for the index last year. January’s index is based on responses from builders who were surveyed during the first two weeks in January.

“Builders are geared up for another solid year and expect the demand from home buyers to remain resilient,” said David Wilson, a custom home builder from Ketchum, Idaho, and the newly elected 2005 NAHB president, in a news release. “We expect somewhat higher mortgage rates, but they will still be at reasonably affordable levels to accommodate families who are shopping for a new home.”

Positive trends in employment and household income will buoy housing demand this year, according to NAHB Chief Economist David Seiders, although he noted that builders will have to contend with rising interest rates and – in some markets – high housing prices that affect housing affordability. “Following a record year for home sales and single-family starts, the balance of forces is likely to take a modest toll of 3 percent to 4 percent this year,” he said.

The 20-year-old NAHB/Wells Fargo Housing Market Index is derived from a monthly survey of builders that NAHB has been conducting for nearly 20 years. Builders report current sales of single-family homes, prospects for sales in the next six months and traffic of prospective buyers. Scores for each component are then used to calculate a seasonally adjusted index where any number above 50 indicates favorable sales condition.

All three components of the index were off slightly in January but remained close to the peak levels of the previous year: Current single-family sales declined to 77, down from 78 in December; sales prospects for the next six months dropped from 80 to 78; and buyer traffic went from 52 to 50.

Regionally, home builders were most confident in the West, with an overall seasonally adjusted reading of 81. That was followed by the South, at 75; the Northeast, at 65; and the Midwest, at 55. The Midwest has been weaker than other regions because of sluggish job creation.