Builder Confidence Continues to Drop

December 18th, 2018 by Drew Vass, Executive Editor

New data from the National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index (HMI) shows that builder confidence in the market for newly-built single-family homes fell four points to 56 in December. This is the lowest HMI reading since May 2015, NAHB reports, but the number still remains above 50, which indicates that the market is seen as more good than poor.

“We are hearing from builders that consumer demand exists, but that customers are hesitating to make a purchase because of rising home costs,” says NAHB chairman Randy Noel. “However, recent declines in mortgage interest rates should help move the market forward in early 2019.”

The HMI is derived from a monthly survey gauging builder perspectives on sales and sales expectations for single-family homes for the next six months. Builders rate sales expectations as “good,” “fair” or “poor,” and then rate traffic of prospective buyers as “high to very high,” “average,” or “low to very low.” Scores are used to calculate a seasonally adjusted index where any number above 50 indicates that more builders view conditions as mostly positive.

“The fact that builder confidence dropped significantly in areas of the country with high home prices shows how the growing housing affordability crisis is hurting the market,” says NAHB chief economist Robert Dietz. “This housing slowdown is an early indicator of economic softening, and it is important that builders manage supply-side costs to keep home prices competitive for buyers at different price points.”

According to NAHB officials, all HMI indices posted declines. Current sales conditions fell six points to 61; expectations for the next six months dropped four points to 61; and buyer traffic dropped two points to 43.

Looking at the three-month moving averages for regional HMI scores, the Midwest region dropped two points to 55; the Western and Southern regions both fell three points to 68 and 65, respectively; and the Northeast registered an eight-point drop to 50.

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