Infrastructure Challenges Sap Builder Confidence Despite Increased Demand

The National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index, a measure of home builder confidence, slipped again in March, the third month in a row it has failed to make gains.  The index had increased for eight consecutive months reaching a level of 47, the highest in many years, in December before pausing in January, then slipping to 46 in February and to 44 in today's report. 

The HPI is based on a monthly survey of NAHB's home-builder members in which they are asked to gauge the current market for newly constructed single family homes and estimate the market over the next six months on scales of "good," "fair" or "poor."   They are also asked to rate traffic of prospective buyers as ""high to very high," "average" or "low to very low." Scores from each component are then used to calculate a seasonally adjusted index and the composite HPI.  Any number over 50 indicates that more builders view conditions as good than poor.

The HMI component gauging current sales conditions declined four points to 47 but the component gauging sales expectations in the next six months rose one point to 51 and the component gauging traffic of prospective buyers gained three points to 35.

NAHB Chairman Rick Judson notes that "Although many of our members are reporting increased demand for new homes in their markets, their enthusiasm is being tempered by frustrating bottlenecks in the supply chain for developed lots along with rising costs for building materials and labor. At the same time, problems with appraisals and credit availability remain considerable obstacles to completing deals."

"In addition to tight credit and below-price appraisals, home building is beginning to suffer growth pains as the infrastructure that supports it tries to re-establish itself," explained NAHB Chief Economist David Crowe. "During the Great Recession, the industry lost home building firms, building material production capacity, workers who retreated to other sectors and the pipeline of developed lots. The road to a housing recovery will be a bumpy one until these issues are addressed, but in the meantime, builders are much more optimistic today than they were at this time last year."

NAHB uses a three month moving average to track the HMI on a regional basis.  These averages were mixed with  the Northeast unchanged at 39, the Midwest and South posting one-point declines to 47 and 46, respectively, and the West registering a four-point increase to 58.