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Homebuilder Confidence Soars Again

Kevin Cook

The National Association of Homebuilders (:NAHB) survey was released at 10am ET and the composite read of 57 for their Housing Market Index was another stunner after June's 8 point rise to 52 -- the highest since May 2006.

The NAHB, in conjunction with Wells Fargo, produces a Housing Market Index (:HMI) based on a monthly survey of NAHB members designed to take the pulse of the single-family housing market. The survey asks respondents to rate market conditions for the sale of new homes at the present time and in the next 6 months as well as the traffic of prospective buyers of new homes. 

The 3 components are first viewed as their own indexes and then simply averaged together. A plus 50 reading indicates that home builders, as a group, are more optimistic than pessimistic. In June, two of the report's three components were above 50 led by the six-month outlook, at a very upbeat 61, followed by the current sales component which was strong at 56. Bringing up the rear at 40 was the traffic component. Thus the average of 52 for June.

The July surge to 57 breaks down like this: future sales were the strongest component in the report, at 67, with present sales also very strong at 60 for a 5 point gain that sees strength for new home sales this month. Traffic is on the rise but continues to lag at 45. At 57, we are now back to levels seen in January of 2006.

This is clearly better than survey expectations which averaged around 51 after a dramatic rise in market interest rates, with the 10-year yield surging above 2.5% in a month, driving the 30-year mortgage above 4.5%. Even the mortgage application data of late warned of a slow-down in house buying.

On June 25 when I looked at all the stellar data from housing, including New Home Sales and the Case-Schiller Index, I asked if the housing market was getting "too hot." The majority of responses were of the mood that it was not nearing a bubble any time soon.

Anyone feel differently since then?

Or, do you think that this is exactly the kind of momentum we want now for the economy?

Also, since the spike in interest rates in June didn't act as a deterent to builder optimism, is it in turn a motivator of confidence, as more families and investors may be viewed as "scrambling to buy" before rates go higher?

And do you believe that at some point, the natural weight of higher rates will probably rein in any excesses before they get bubbly?

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