Home builder confidence plummets in February, US

Home builder confidence plunged ten points to 46 in February, the lowest level in nine months, signaling growing pessimism among builders regarding sales trends, according to the National Association of Home Builders/Wells Fargo.

The report cited unusually severe weather conditions across most of the United States, as well as persistent concerns regarding the cost and availability of labor and lots, as the main drivers of the current pessimism in the market for newly-constructed, single-family homes.

National Association of Home Builders (NAHB) Chairman Kevin Kelly, said:

“Significant weather conditions across most of the country led to a decline in buyer traffic last month. Builders also have additional concerns about meeting ongoing and future demand due to a shortage of lots and labor.”

NAHB Chief Economist David Crowe added that constraints on the supply chain for skilled workers, developed lots, and building materials are making builders jittery. He added that bitterly cold weather conditions also hurt retail and automobile sales, which had a contributing effect on the demand for newly-built houses.

The NAHB/Wells Fargo Housing Market Index measures builder’s perceptions of home sales and sales expectations for the next six months of single-family homes. In the survey respondents say whether the climate is ‘good’, ‘fair’ or ‘poor’.

Those surveyed are also asked to rate traffic of prospective buyers as ‘high to very high’, ‘average’ or ‘low to very low’. Scores are then adjusted seasonally; any score over 50 indicates a positive outlook, while below 50 indicates a negative outlook.

All home builder confidence components down

All three of the major Housing Market Index (HMI) components fell in February, as follows:

• Current sales conditions – a decline of 11 points to 51.

• Sales expectations for the next six months – fell 6 points to 54.

• Buyer traffic – went down 9 points to 31.

Regarding the three major HMI components, the West scored 63 (unchanged) in February, the Midwest 57 (1 point down), the South 53 (3 points down), and the Northeast 38 (4 points down).

Bloomberg News quoted Allan Merril, CEO of Atlanta-based Beazer Homes USA Inc., who said “While housing isn’t the screaming bargain that it was a year ago, it is still highly affordable in relation to household incomes and to alternative rental payment. Household formations are occurring, and they drive new construction.”

New homes only represent a fraction of the US housing market. However, they have a disproportionate impact on the economy. Each new home that is constructed creates 3 year-long jobs, generating approximately $90,000 in tax revenue for the government, according to NAHB.

The US housing market, which had been gathering steam, lost some momentum during the summer of 2013 when interest rates started to increase. Activity started picking up again during the fall, but declined later in the year as home prices rose, bad weather set in, and inventories tightened.

Pending home sales in December fell steeply, but in the same months existing home sales rose.