Coronavirus Causes Builder Confidence Decline of Historic Proportions

April 15th, 2020 by Editor

Builder confidence in the market for newly-built single-family homes plunged 42 points in April, the largest single monthly change in the history of the index and marks the lowest builder confidence reading since June 2012, according to the latest National Association of Home Builders/Wells Fargo Housing Market Index (HMI) released today. The drop, which puts builder confidence at 30, reflects the growing effects of the COVID-19 pandemic and marks the first time that builder confidence has been in negative territory—defined as any number below 50—since June 2014.

“This unprecedented drop in builder confidence is due exclusively to the coronavirus outbreak across the nation, as unemployment has skyrocketed and gaps in the supply chain have hampered construction activities,” said NAHB Chairman Dean Mon, a home builder and developer from Shrewsbury, N.J. “Meanwhile, there continues to be some confusion over builder eligibility for the Paycheck Protection Program, as some builders have successfully submitted loan applications while others have not been able to. NAHB is working with the White House, Treasury and Congress to get the broadest builder participation possible. Home building remains an essential business throughout most of the nation, and as the pandemic shows signs of easing in the weeks ahead, buyers should return to the marketplace.”

Derived from a monthly survey that NAHB has been conducting for 30 years, 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.

“Before the pandemic hit, the housing market was showing signs of strength with January and February new home sales at their highest pace since the Great Recession,” said NAHB chief economist Robert Dietz. “To show how hard and fast this outbreak has hit the housing sector, a recent poll of our members reveals that 96 percent reported that virus mitigation efforts were hurting buyer traffic. While the virus is severely disrupting residential construction and the overall economy, the need and demand for housing remains acute. As social distancing and other mitigation efforts show signs of easing this health crisis, we expect that housing will play its traditional role of helping to lead the economy out of a recession later in 2020.”

The HMI index gauging current sales conditions dropped 43 points and now sit at 36. The component measuring sales expectations in the next six months fell to 36, down 39 points total, and the gauge charting traffic of prospective buyers also decreased 43 points, from 53 to 13.

Looking at the monthly averages regional HMI scores, the Northeast fell 45 points in April and is now 19; the Midwest dropped to 25—a decrease of 42 points; the South fell 42 points to 34; and the West had the biggest drop, 47 points, to 32.

The HMI survey took place between April 1 and April 13.

Tags: , , , , , ,

Leave Comment