Builders See Business Getting Better - Just not Right Now

Despite a revival of demand for new homes, builders are facing constraints that are eroding their confidence in the market for new single family homes.  The National Association of Home Builders (NAHB) Housing Market Index (HMI) produced jointly with First American Title dropped in its April, along with two of its three component indices.  NAHB said that the drop in the composite from 44 to 42 comes as builders face increasing costs for building materials and rising concerns about the supply of developed lots and labor.   

"Many builders are expressing frustration over being unable to respond to the rising demand for new homes due to difficulties in obtaining construction credit, overly restrictive mortgage lending rules and construction costs that are increasing at a faster pace than appraised values," said Rick Judson, National Association of Home Builders (NAHB) Chairman. "While sales conditions are generally improving, these challenges are holding back new building and job creation."

The monthly NAHB survey asks home builders for their perception of current single family home sales and their expectation for those sales over the next six months on a scale of "good," "fair" or "poor." They are also asked to rate the traffic of prospective buyers as "high to very high," "average" or "low to very low." Scores for each component are then used to calculate a seasonally adjusted index where any number over 50 indicates that more builders view conditions as good than poor.

While the HMI component gauging current sales conditions declined two points to 45 and the component gauging buyer traffic declined four points to 30 in April, the component gauging sales expectations in the next six months posted a three-point gain to 53 - its highest level since February of 2007.

"Supply chains for building materials, developed lots and skilled workers will take some time to re-establish themselves following the recession, and in the meantime builders are feeling squeezed by higher costs and limited availability issues," explained NAHB Chief Economist David Crowe. "That said, builders' outlook for the next six months has improved due to the low inventory of for-sale homes, rock bottom mortgage rates and rising consumer confidence."

Regional responses to the survey are viewed as three-month moving averages.  The composite score for the Northeast was unchanged at 38 in April but the other three regions fell; the Midwest by two points to 45, the South by four to 42, and the West by three points to 55.