This Housing Indicator Suffers Worst Monthly Decline in History

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The strength of the housing recovery remains questionable depending on who you ask. Home prices have rebounded sharply from their worst levels of the financial crisis, but the Federal Reserve played a major role in the process. The real estate market is expected to return to a more sustainable pace over time, but frigid temperatures and other factors are already weighing on home-builder sentiment.

After finishing 2013 at its best level since August, the National Association of Home Builders/Wells Fargo’s index of builder confidence continues to worsen. The index plunged 10 points in February to 46, compared to 56 in January. More builders viewed market conditions as poor than good for the first time in nine months.

It was the worst monthly decline for the index in survey history, and the first reading below 50 since May. 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.

“Significant weather conditions across most of the country led to a decline in buyer traffic last month,” said NAHB Chair Kevin Kelly, a home builder and developer from Wilmington, Delaware. “Builders also have additional concerns about meeting ongoing and future demand due to a shortage of lots and labor.”

The NAHB/Wells Fargo Housing Market Index gauges builder perceptions in three areas of the real estate market, all of which declined in February. The reading for current sales conditions sank 11 points to 51, while sales expectations for the next six months fell 6 points to 54. The component gauging buyer traffic dropped 9 points to 31.

Looking at the three-month moving averages for regional HMI scores, the West held steady at 63 in February, while the Midwest slipped one point to 57. The South and Northeast declined to 53 and 38, respectively.

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