Builder Sentiment Loses Ground

(Photo credit: Michael Tucker)

Builder confidence started the year lower as affordability concerns weigh heavily with buyers and builders contend with rising construction costs, the National Association of Home Builders/Wells Fargo Housing Market Index found.

Builder confidence in the market for newly built single-family homes fell two points to 37 in January, the report said.

“In a positive development, Freddie Mac reported that the average mortgage rate fell to 6.06% as of January 15, the lowest rate in three years and nearly 100 basis points below the same period last year,” NAHB Chief Economist Robert Dietz noted.

(Most responses to the January housing market index survey were received prior to the announcement that Fannie Mae and Freddie Mac would purchase $200 billion in mortgage-backed securities in an effort to lower mortgage interest rates.)

“The future sales component of the Housing Market Index dipped below 50 for the first time since September, indicating that builders continue to face several issues that include labor and lot shortages as well as elevated regulatory and material costs,” Dietz noted.

The latest HMI survey also revealed that 40% of builders reported cutting prices in January, the third consecutive month the share has been at 40% or higher. The average price reduction was 6% in January, up from a 5% rate in December. The use of sales incentives was 65% in January, marking the tenth consecutive month this share has exceeded 60%.

The NAHB/Wells Fargo Housing Market 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.