The longevity of the housing recovery is debatable depending on who you ask. Home prices have rebounded sharply from their worst levels of the financial meltdown, but home-builder sentiment is still facing several headwinds that investors should keep an eye on.
After posting its worse reading in survey history last month, the National Association of Home Builders/Wells Fargo’s index of builder confidence barely changed. In March, the index edged one point higher to 47 from 46 in February. “The March HMI mirrors last month’s sentiment, as builders continued to be affected by poor weather and difficulties in finding lots and labor,” explained NAHB Chairman Kevin Kelly, a home builder and developer from Wilmington, Delaware.
The results were worse than expected. On average, economists expected the index to reach 50 this month. Any reading below 50 indicates that builders in general hold a negative view on sales conditions. In the five years before the Great Recession, the index averaged 54, and hit an all time low of 8 in early 2009. The index has now been below 50 for two consecutive months — its worst readings since May 2013.
“A number of factors are raising builder concerns over meeting demand for the spring buying season,” said NAHB Chief Economist David Crowe. “These include a shortage of build-able lots and skilled workers, rising materials prices and an extremely low inventory of new homes for sale.”
The NAHB/Wells Fargo Housing Market Index gauges builder perceptions in three areas of the real estate market, which were mixed in March. The reading for current sales conditions increased one point to 52, while sales expectations for the next six months declined one point to 53. The component gauging buyer traffic gained 2 points to 33.
Sentiment was weak across the country. Looking at the three-month moving averages for regional HMI scores, the Northeast and Midwest both fell three points to 35 and 53, respectively. The South dropped four points to 49, while the West declined two points to 61.
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