October Homebuilder Index Improves Slightly, but Headwinds Lurk for 2019

The National Association of Home Builders (NAHB)/Wells Fargo housing market index (HMI) for October rose by a point to 68 to remain in the high 60s range for the fifth consecutive month. The HMI posted an 18-year high of 74 in December 2017. Economists polled by Bloomberg were expecting an index reading of 67.

Builders continue reporting solid demand for new homes. The strong U.S. economy and a 50-year low in the nation’s unemployment rate are fueling the demand for new homes.

The index is based on an NAHB monthly survey of homebuilder perceptions of current single-family home sales and expectations for sale in the next six months. An index reading above 50 indicates that more builders view sales conditions as good than view them as poor.

The current sales conditions subindex for October rose by one point to 74, and the subindex that estimates prospective buyer traffic jumped by four points to 53. The subindex measuring sales expectations for the next six months increased from 74 to 75.

The NAHB noted:

Favorable economic conditions and demographic tailwinds should continue to support demand, but housing affordability has become a challenge due to ongoing price and interest rate increases. Unless housing affordability stabilizes, the market risks losing additional momentum as we head into 2019.

In the NAHB’s regions, three-month moving average indexes rose in two of four regions. The Northeast index score rose three points to 57, as well as one point in the South to 71. The index score in the West remained unchanged at 70, while the index dropped two points to 57 in the Midwest.