Builders Are Optimistic - as Usual

On Tuesday, the National Association of Home Builders released the February edition of its Housing Market Index. The HMI rose by two points compared to January, but remains in record-low territory.


Despite the protracted downturn in the housing market, builders have remained steadfastly optimistic. Indeed, they've actually been expecting conditions to improve for the last three years. Take a look at the chart, below, which shows the 'current conditions' and 'expected conditions' components of the HMI.


The 'expected conditions' component of the HMI (which measures builders' expectations for the next six months) has remained roughly ten points higher than the 'current conditions' component since October 2006. Throughout most of the period in question, however, conditions actually deteriorated. Evidently, builders keep expecting the future to be better than the present, but the future keeps receding.