Here’s Why Builder Confidence is Down in June

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 — was down three points in June after remaining flat for the last six months. The last time the index was this low was September 2010.

“Builder confidence has waned even further as economic growth has stalled, foreclosures have continued to hit the market and the cost of building a home has risen,” said NAHB Chief Economist David Crowe. “Meanwhile, potential new-home buyers are being constrained by difficulty selling their existing homes, stringent lending requirements, and general uncertainty about the economy. Economic growth must pick up in order for housing to gain the momentum it needs to get back on track.”

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.

While May saw a slight uptick in some of its indexes, every component of the HMI fell in June. The component gauging current sales conditions and the component gauging traffic of prospective buyers each fell two points, to 13 and 12, respectively, and the component gauging sales expectations in the next 6 months fell four points to tie its record low score of 15 set in February and March of 2009.

However, when scores are broken up regionally, the Northeast actually posted a gain in its HMI score for June, rising two points to 17. Meanwhile, the Midwest dropped three points to 11, South dropped two points to 14 and the West posted a four-point decline to 12.