Affordability Pressures Keep Builder Confidence Low

(Photo credit: Michael Tucker)

Builder confidence in the market for newly built single-family homes inched up one point in August but remains muted, the National Association of Home Builders/Wells Fargo Housing Market Index reported Monday.

“While builder sentiment edged higher in August, builders continue to contend with high construction costs and broader economic uncertainty,” NAHB Chairman Bill Owens said. “Rising gas and diesel prices are pushing up material costs, and spec home building remains weak as many prospective buyers stay on the sidelines.”

NAHB Chief Economist Robert Dietz added that the survey shows continuing signs of weakness in the home building market. “August marked the 16th straight month that at least 30% of builders reported cutting prices to support demand, as well as the 16th consecutive month with the HMI below 40,” he said.

The latest HMI survey also revealed that 35% of builders cut prices in August, down from 37% in July. The average price reduction was 6% in August, the same rate as the previous month. The use of sales incentives was 63% in August, unchanged from the previous month.

The NAHB/Wells Fargo HMI 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.” Any number over 50 indicates that more builders view conditions as good than poor.

The index measuring current sales conditions increased two points to 39, while the indexes for future sales expectations and prospective buyer traffic held steady at 43 and 23, respectively.