HOUSING MARKET INDEX JUMPS EIGHT POINTS IN DECEMBER

"This is the largest monthly increase in the HMI since 1998, and marks a return to the index's general range of strength prior to Sept. 11," said Bruce Smith, NAHB president and a home builder from Walnut Creek, Calif. "Builders remain concerned about the situation in some markets -- particularly in the Midwest, where job losses have been most concentrated. However, the very favorable interest-rate environment and strong investment potential of homeownership are proving to be powerful incentives for buyers whose jobs have not been impacted by recent economic weakness."

Smith cited recent evidence that consumer confidence is rebounding in many markets following the Sept. 11 attacks, and said the positive effects of this rebound on housing bode well for the entire economy. "The University of Michigan's measure of consumer sentiment rose again by more than a point in November, after rising nearly a point in October," he said. "This apparent upward trend could be adding fuel to the housing market, which along with related industries accounts for nearly 20 percent of the Gross Domestic Product."

The HMI is derived from a monthly survey of builders that NAHB has been conducting for nearly two decades. Home builders are asked to rate current sales of single-family homes and sales expectations for the next six months as "good," "fair" or "poor." They are also asked to rate traffic of prospective buyers as either "high to very high," "average" or "low to very low." Scores for responses to each component are used to calculate a seasonally adjusted overall index, where any number over 50 indicates that more builders view sales conditions as good than poor.

Each of the HMI's three component indexes rose eight points in December. The index gauging current sales of single-family homes rose to 60 from the previous month's 52 reading, while the index for expected sales in the next six months rose to 64 from a previous 56 and the index for traffic of prospective buyers rose to 46 from a previous 38.

While Smith acknowledged that home sales and production are still expected to decline somewhat in this year's final quarter and the beginning of next year, he said the solid market fundamentals that spurred December's HMI gain are a good reason to believe that the slowdown will be relatively short-lived. "The market will likely flatten out in early 2002 and then rebound to positive growth territory in the second quarter," he said.

This eUpdate posting by: Steve Joyce