Builder Confidence Continues Retreat from 2014 Levels

By: Jann Swanson

Builder confidence in the market for newly built, single family homes has declined to its lowest level in nine months.  The National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index fell two points to 53 in March, an HPI level last seen in July 2014.  In was the third time in as many months that the HPI has declined, coming off of the 2014 high of 58 posted in the last two months of the year.

 "The drop in builder confidence is largely attributable to supply chain issues, such as lot and labor shortages as well as tight underwriting standards," said NAHB Chief Economist David Crowe. "These obstacles notwithstanding, we are expecting solid gains in the housing market this year, buoyed by sustained job growth, low mortgage interest rates and pent-up demand."

NAHB compiles the HPI from results of a survey it has conducted for 30 years.  The association asks its member builders to gauge their perception of both current single-family home sales and sales expectations for the next six months as "good," "fair" or "poor."  It also asks builders to rate 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.

Two of the three HMI components posted losses in March and all three are lower than at the end of 2014. The component gauging current sales conditions has also declined for three straight months and fell three points in March to 58.  The component measuring buyer traffic dropped two points to 37, also the third consecutive decline. That component has not met the benchmark level of 50 since the end of 2004.  The gauge charting sales expectations in the next six months held steady at 59 but is 5 points below the December 2014 level.

Looking at the three-month moving averages for regional HMI scores, the Northeast and South each posted a two-point drop to 43 and 55, respectively. The Midwest rose two points to 56, while the West fell seven points to 61.

NAHB Chairman Tom Woods said, "Even with this slight slip, the HMI remains in positive territory and we expect the market to improve as we enter the spring buying season."