Builder Optimism Mounts Back to 2005 High


If there’s one phrase that best describes U.S. homebuilders nowadays, it’s unbridled optimism. This sunny mindset was clearly manifest in July 2015 as the housing market index (HMI) reached the 60 level, sustaining the same lofty reading in June which has not been seen since November 2005.

The HMI is based on the outlook for new single family home construction that the National Association of Home Builders (NAHB) and Wells Fargo have been jointly tracking for 30 years. The index is computed from results of a monthly survey of NAHB members wherein any reading above 50 is an indication that more builders see conditions ahead as good rather than poor. The survey’s components include current sales conditions, six-month sales expectations and buyer traffic.

For July 2015, two of the three HMI parameters advanced from the June level, with only buying traffic slipping a point to 43 which was still better than the 39 recorded in May. Six-month sales expectations jumped two points to 71 while the component for current sales conditions was up a point to 66.

South outperforms the field

Builder Optimism Mounts Back to 2005 High

Regional HMI score based on three-month moving averages was highest in the South with 61. Similar index readings of 60, 55, and 47 were noted in the West, Midwest, and Northeast, respectively.

The July HMI peak is in lockstep with recent local reports of stronger sales in both markets for resale homes and new builds. In Manatee and Sarasota, sales of pre-owned single family homes and condos for June 2015 totaled 2,058 units, up year over year by 17% and sustains a string of four-month gains to levels not experienced since 2004.

New home sales bonanza

The sales picture is as rosy for new home construction based on homebuilder reports on projects in the region. Lakewood Ranch-based regional builder Neal Communities reported having already sold over 560 homes as of the first half of 2015, 25% better than a year earlier and well en route to meeting the company’s thousand-unit sales target for this year. Separately, the builder’s custom-home unit, Neal Signature Homes, had 62 houses sold in the first semester, 50% over the 2014 first half.

Ashton Woods, one of the largest national homebuilders, is also reaping similar success in its new community, The Retreat, in northwest Bradenton. Out of the 12 home sites in this project near Palma Sola Bay, only three lots remain. This builder makes available at The Retreat several home models which feature floor plans from about 1,600 to 2,750 square feet designed with three up to four bedrooms at starting prices in the $300s.

Upside on permitting

The buoyant mood of the July HMI index is further reflected in the brisk issuance of building permits in Manatee and Sarasota counties. As of end-June, 1,309 permits were already issued in Manatee, substantially ahead of the levels in 2014 and 2014.

The most recent data available for Sarasota is the 485 permits recorded in May 2015 which is also ahead of the record two years earlier. Once completed, the new homes permitted in the two counties through May will bring over $1 billion in construction value to the market, according to Census figures.