Here’s Why Builder Confidence is Back Sliding
According to the National Association of Home Builders, builder confidence in the market for newly built, single-family homes — the National Association of Home Builders/Wells Fargo Housing Market Index — dropped one notch to 16 in April where it’s been for five of the last six months.
“While builders in some areas are starting to see a pickup in traffic of prospective home buyers, many consumers remain skittish about the health of the housing market and overall economy, particularly in view of recent legislative and regulatory proposals that could make it much harder to get a mortgage,” noted NAHB Chairman Bob Nielsen, a home builder from Reno, Nev. “At the same time, builders are competing against a large number of foreclosed and distressed properties on the market, which are holding down prices and appraisals and making it tough for potential clients to sell their existing homes.”
“The spring home buying season is getting off to a slow start due to persistent concerns about home values as more foreclosures seem to be hitting the market, increasingly restrictive lending requirements for home buyers and builders, and the slow pace of economic recovery,” acknowledged NAHB Chief Economist David Crowe. “While pockets of improving activity are appearing in some markets, the best sales activity appears to be happening in the lower price ranges, where first-time buyers have greater flexibility than repeat buyers who must sell their current home. Consumers who can take advantage of today’s low mortgage rates and very attractive pricing are finding bargains and are buying.”
Derived from a monthly survey that NAHB has been conducting for more than 20 years, the NAHB/Wells Fargo Housing Market Index gauges builder perceptions of current single-family home sales and sales expectations for the next six months as “good,” “fair” or “poor.” The survey also asks builders 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 where any number over 50 indicates that more builders view sales conditions as good than poor.
Two out of three of the HMI’s component indexes posted declines in April. While the component gauging current sales conditions fell one point to 16, the component gauging sales expectations for the next six months declined three points to 23, its lowest mark since October of 2010. However, the index gauging traffic of prospective buyers rose a single point to 13 in April, marking its highest level since last June.
The South, which is the largest regional housing market represented in the HMI, was primarily responsible for the overall index’s decline this month. While that region dropped four points to 15, the Northeast and Midwest registered two-point gains to 20 and 14, respectively, and the West registered no change from the previous month, at 17.