Builder Confidence Drops As Hurricanes Add Uncertainty

How much of a punch did Hurricanes Harvey and Irma pack on home builders? Enough to make a difference in this month’s Housing Market Index from the National Association of Home Builders.

The NAHB/Wells Fargo Housing HMI fell three points in September, NAHB reported yesterday, to 64 from a downwardly revised 67 in August. The component gauging current sales conditions fell four points to 70 and the index charting sales expectations in the next six months dropped four points to 74. Meanwhile, the component measuring buyer traffic slipped a single point to 47.

Regionally, the South dropped a single point to 66, while the West increased three points to 77. The Northeast rose one point to 49; the Midwest fell three points to 63.

“The recent hurricanes have intensified our members’ concerns about the availability of labor and the cost of building materials,” said NAHB Chairman Granger MacDonald, a home builder and developer from Kerrville, Texas. “Once the rebuilding process is underway, I expect builder confidence will return to the high levels we saw this spring.”

The 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 for each component are then used to calculate a seasonally adjusted index where any number over 50 indicates that more builders view conditions as good than poor.

“Despite this month’s drop, builder confidence is still on very firm ground,” said NAHB Chief Economist Robert Dietz. “With ongoing job creation, economic growth and rising consumer confidence, we should see the housing market continue to recover at a gradual, steady pace throughout the rest of the year.”

Mark Vitner, senior economist with Wells Fargo Securities, Charlotte, N.C., noted Harvey and Irma hit the two states for new single-family home building (Texas and Florida, respectively).

“Damages from the hurricanes introduce an element of uncertainty into the housing outlook and will likely bolster labor and material costs,” Vitner said. “The drop in the HMI may signal some moderation in new home sales and homebuilding during the latter part of 2017.”