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Builder Confidence Subsides to 15-Year Low
Reacting to their perception of increasing consumer uncertainty over the new single-family home market, builders polled for the Wells Fargo/NAHB Housing Market Index (HMI) this month tempered their views on current and expected sales activity, pushing the August index down seven points to 32, its lowest level since February 1991. This was the seventh consecutive monthly decline.
“Two big factors are coloring builders’ confidence in the market right now — rising sales cancellations and substantial growth in inventories of both new and existing homes,” said NAHB Chief Economist David Seiders. “These factors are largely the result of an increasing number of potential buyers adopting a ‘wait-and-see’ attitude because of uncertainty about where the housing market is headed, and record-high energy costs also appear to be weighing on housing demand. We’re also seeing an anticipated withdrawal of investors/speculators from the market, following a major influx in 2004-2005.”
Derived from a monthly survey that NAHB has been conducting for 21 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.
All three component indexes declined in August: current single-family home sales fell seven points to 36, while sales expectations and prospective buyer traffic both fell six points, to 40 and 21, respectively.
Regionally, the HMI dropped three points to 34 in the Northeast, five points to 15 in the Midwest, nine points to 41 in the South and 10 points to 42 in the West.
“It’s important to recognize that home sales and housing production are subsiding from record levels a year ago, and those levels clearly were unsustainable,” said Seiders. “We expect the erosion in market activity to continue through most of this year before stabilizing in 2007.” Seiders also noted that, historically, builder sentiment on the HMI has tended to contract by a greater margin than actual sales and production activity.
“On the bright side for consumers, the economy continues to be in fundamentally good shape, mortgage rates remain near historic lows, house price gains are decelerating and builders are offering substantial buyer incentives to keep their inventories down,” Seiders said. “Such favorable market conditions certainly are grounds for optimism among those in the market to buy new homes.”
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