Here’s Why Builder Confidence is Going Nowhere
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 unchanged at 16 in May where it’s been for six of the last seven months.
“Builder confidence has hardly budged over the past six months as persistent concerns regarding competition from distressed property sales, lack of production credit, inaccurate appraisals, and proposals to reduce government support of housing have continued to cloud the outlook,” said NAHB Chairman Bob Nielsen, a home builder from Reno, Nev. “In addition, many builders in this month’s survey cited high gas prices as a further contributor to consumer anxiety and reluctance to go forward with a home purchase.”
“The HMI component index measuring traffic of prospective buyers increased by one point for the second time this year as prospective buyers show growing interest but remain extremely hesitant due to a number of factors,” said NAHB Chief Economist David Crowe. “Asked to identify reasons that potential customers are holding back at this time, 90 percent of builders surveyed said clients are concerned about being able to sell their existing home at a favorable price, while 73 percent said consumers think it will be difficult for them to get financing. Clearly, access to credit for both builders and buyers remains a considerable obstacle to the revival of the new-homes market.”
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.
Both the index gauging current sales conditions and the index gauging traffic of prospective buyers inched up one point in May, to 16 and 14, respectively. While still very low, the traffic gauge is now at its highest point since May of 2010. Meanwhile, the index gauging sales expectations in the next six months declined two points to 20 in May.
Regionally, the HMI results were mixed, with the Northeast posting a 5-point decline to 15, the Midwest posting no change at 14, the South posting a one-point gain to 16, and the West posting a two-point decline to 16.