US home builder optimism continues to stay healthy

The NAHB Housing Market Index of the US dropped slightly in July by one point to 59 from June’s reading of 60. However, it is roughly even with its six month average. The home builder optimism remains at healthy level, noted Wells Fargo in a research note.

“For the past six months, builder confidence has remained in a relatively narrow positive range that is consistent with the ongoing gradual housing recovery that is underway. However, we are still hearing reports from our members of scattered softness in some markets, due largely to regulatory constraints and shortages of lots and labor," said NAHB Chairman Ed Brady.

The fall in July’s index was mainly because of the current frustrations regarding lot availability and the development process, said Wells Fargo. Most of the drop was seen in the South region, which registered drop of 4 points in the month. However, it improved in Northeast to 42, in Midwest to 52 and in West to 70. The present and future single family sales weakened slightly in July.

The present single family sales index fell to 63, whereas the future single family sales dropped to 66. Meanwhile, prospective buyers traffic also fell marginally from 46 to 45. This implies that a rebound in the sentiment index from the current level might not be imminent, noted Barclays in a research note.

“The economic fundamentals are in place for continued slow, steady growth in the housing market. Job creation is solid, mortgage rates are at historic lows and household formations are rising. These factors should help to bring more buyers into the market as the year progresses,” said NAHB Chief Economist Robert Dietz.

The consistent readings of NAHB HMI’s in the past six months are consistent with the projection of continued modest rebound in new homes sales and single-family homebuilding, according to Wells Fargo.