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Builders Adjust Sales Outlook Downward in November
Responding to lower measures of consumer confidence and rising mortgage rates, single-family home builders have adjusted their market expectations downward this month, though they still expect favorable levels of sales activity, according to the latest NAHB/Wells Fargo Housing Market Index.
The index for November declined eight points to a level of 60.
“It’s important to keep today’s report in perspective,” said NAHB President Dave Wilson. “Many builders still have substantial backlogs of unfilled orders and will remain quite busy in coming months. But we’re well aware that some slowing of demand is inevitable following the record-breaking sales activity that has prevailed for some time.”
“No huge drop is in the cards — the sharp decline in the HMI probably overstates the actual degree of deterioration in the single-family market, and it’s most likely that we’re engaged in an orderly cooling process that will lead to somewhat lower home sales and production in the future,” added NAHB Chief Economist David Seiders. “We’re looking for a 5% or 6% decline in home sales next year, compared to 2005.”
Derived from a monthly survey that NAHB has been conducting for some 20 years, the HMI gauges builder perceptions of current single-family home sales, sales expectations for the next six months and traffic of prospective buyers. Any number over 50 indicates that more builders view sales conditions as good than poor.
Builders’ assessment of sales expectations fell eight points to 66 in this month’s survey; sales expectations were off nine points, at 64; and prospective traffic fell five points to 46.
Seiders cited deterioration in consumer attitudes in recent months, spurred by the season's hurricanes and resulting higher energy prices, as a significant factor in November’s builder confidence gauge. He also cited rising interest rates on both fixed- and adjustable-rate mortgages. Fixed rates averaged 6.35% during the survey period compared to 6% in October and 5.7% the month before that.
“In addition, affordability problems have arisen as house price gains have accumulated in many parts of the country,” he said. “So while builder attitudes are still positive on balance, most are less exuberant than at the HMI’s last peak in the middle of this year.”
The index hit 72 in June; the last time it was as low as 60 was in May of 2003.
Though builder confidence was down across all regions of the country, ongoing trends favored the West, where the index declined from 91 to 78, and were most detrimental to the Midwest, where the builders’ view of the market slipped from 45 to 38. The index was 68 in the South, down from 76 in October; and in the Northeast, the gauge registered 61, down six points.
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