Home Builder Confidence Sinks to Lowest Level Since October

Despite the recent rebound in the real estate market, a gauge of confidence among home builders declined in April for the third consecutive month.

Higher costs for building materials and rising concerns about the supply of developed lots and labor sent the National Association of Home Builders/Wells Fargo index of builder confidence down 2 points to 42, the lowest level since October. Economists projected a slight increase to 45, according to the median estimate in a Bloomberg survey. A reading below 50 on the index means more respondents said conditions were poor than good.

“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 Chairman and a home builder from Charlotte, N.C. “While sales conditions are generally improving, these challenges are holding back new building and job creation.”

Expectations about the future are climbing…

The NAHB/Wells Fargo Housing Market Index gauges builder perceptions in many areas of the real estate market. The reading for current sales conditions fell two points to 45, while the component gauging buyer traffic declined four points to hit 30 in April. However, sales expectations in the next six months posted a three-point gain to hit 53, its highest level since February 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.”

The three-month moving averages for regional HMI scores declined across the nation. The Midwest region fell two points to 45, while the South dropped four points to 42. The West fell three points to hit 55, and the Northeast was unchanged at 38.

Home-builder stocks such as PulteGroup (NYSE:PHM) and Toll Brothers (NYSE:TOL) both declined more than 3 percent in morning trading. Home-improvement names such as The Home Depot (NYSE:HD) and Lowe’s (NYSE:L) were both down less than 1 percent.

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