Homebuilders More Confident as Remodeling Sags

April 23rd, 2019 by Brigid O'Leary

The latest National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index (HMI) showed an increase in confidence among builders for the newly-built, single-family home market in April. Released last week, after registering at around 60 over the past three months, the monthly survey showed sentiment rising to 63, marking an increase of a point. (HMI ranges from 0 to 100.)

“Builders report solid demand for new single-family homes, but they are also grappling with affordability concerns stemming from a chronic shortage of construction workers and buildable lots,” said NAHB Chairperson Greg Ugalde, a home builder and developer from Torrington, Conn. 

“Ongoing job growth, favorable demographics and a low-interest rate environment will help to modestly spark sales growth in the near term,” added NAHB chief economist Robert Dietz. “However, supply-side headwinds that are putting upward pressure on housing costs will limit more robust growth in the housing market.”

Conducted for 30 years now, the NAHB/Wells Fargo HMI gauges builder perceptions of current single-family home sales and sales expectations for the next six months. Respondents rank their feelings 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 used to calculate a seasonally adjusted index; any number over 50 indicates that more builders view conditions as good than poor.

The HMI index also gauges current sales conditions, a number that also increased by a point, to 69, with a measure of traffic among prospective buyers rising three points to 47. Meanwhile, the measure charting sales expectations for the next six months fell one point to 71.

Looking at the three-month moving averages for regional HMI scores, the Northeast posted a three-point gain to 51, the Midwest increased two points to 53, and the South was up one point to 67. The West remained unchanged at 69.

On the flip side, the NAHB Remodeling Market Index (RMI) posted a reading of 54 in the first quarter of 2019, representing a three point drop from the previous quarter. The RMI has been consistently above 50 since the second quarter of 2013. A consistent 50 or more rating is indicative of more than half of remodelers questioned reporting market activities higher than the previous quarter, more so than those reporting lower market activity over the same time frame. The overall RMI averages current remodeling activity and future indicators.

“The demand for remodeling is strong in many parts of the country due to insufficient home construction and an aging housing stock,” said NAHB Remodelers Chairperson Tim Ellis, a remodeler from Bel Air, Md. “However, it can be difficult to find skilled labor for remodeling projects.”

The RMI reflects a dip of four points over current market conditions from the previous quarter to 53. Among its three major components, major additions and alterations fell seven points to 49 and minor additions and alterations waned one point to 55, while the home maintenance and repair component decreased three points to 56.
Future market indicators for remodeling dropped two points from the previous quarter, to 54, and calls for bids fell three points to 54. Amount of work committed for the next three months increased two points to 54, while the backlog of remodeling jobs registered fell five points to 54. Appointments for proposals remained steady, at 55.

“The Remodeling Market Index declined in the first quarter but remains over 50, indicating the market will continue to expand at modest rates,” said Dietz. “NAHB’s forecast calls for slowing growth, given declining home price appreciation and existing home sales volume, combined with rising construction costs.”

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