Builder Confidence Drops for 3rd Straight Month

Builder confidence in the market for newly built single-family homes fell for the third straight month the National Association of Home Builders reported yesterday-proving headlines can be deceiving.

The NAHB/Wells Fargo Housing Market Index fell by one point in March to 70 from February’s downwardly revised. And although the Index has fallen three straight months from an 18-year high of 74, the total drop has been just four points, leaving it in what analysts say is “strong territory.” NAHB rates any number over 50 an indication more builders view conditions as good than poor.

The HMI component gauging current sales conditions held steady at 77; the chart measuring sales expectations in the next six months dropped two points to 78; and the index gauging buyer traffic fell three points to 51. Regionally, three-month moving averages saw the Northeast up by one point to 57, the South down one point to 73, the West down two points to 79and the Midwest down four points to 68.

“Confidence remains exceptionally high,” said Mark Vitner, senior economist with Wells Fargo Securities, Charlotte, N.C. “Confidence had surged in December, reflecting unseasonably mild weather and some bounce back in sales following last summer’s hurricanes.”

But Vitner noted new home construction has not kept pace with builder optimism, as builders continue to focus on a smaller number of higher value-added projects. “Higher development costs and shortages of developed lots and construction workers are restraining starts,” he said.

NAHB remained optimistic. “A strong labor market, rising incomes and a growing economy are boosting demand for homeownership even as interest rates rise,” said NAHB Chief Economist Robert Dietz. “With these economic fundamentals in place, the single-family sector should continue to make gains at a gradual pace in the months ahead.”

Earlier this week, the Mortgage Bankers Association’s Builder Application Survey reported February mortgage applications for new home purchases increased by 3 percent from January and by 4.6 percent from a year ago.

MBA estimated new single-family home sales at a seasonally adjusted annual rate of 632,000 units in February, based on data from the BAS, a decrease of 9.7 percent from the January pace of 700,000 units. On an unadjusted basis, MBA estimated 55,000 new home sales in February, an increase of 1.9 percent from 54,000 new home sales in January.