Homebuilder confidence rises despite lackluster sales

NAHB index rises but still underwater

Builder confidence in the market for newly built, single-family homes rose four points to 49 – still below positive confidence for the National Association of Home Builders/Wells Fargo Housing Market Index.

Builders are increasingly confident despite the slowdown in current sales and the increasingly tepid outlook for future purchases and prospective buyer traffic.

Builders, however, seem to have faith in historically low mortgage interest rates and what they see as a strengthening job market. This optimism is also in spite of the contraction in the gross domestic product in the first three months of 2014.

“After several months of little fluctuation, a four-point uptick in builder sentiment is a welcome sign and shows some renewed confidence in the industry,” said NAHB Chairman Kevin Kelly, a home builder and developer from Wilmington, Delaware. “However, builders are facing strong headwinds, including the limited availability of labor.”  

At a conference last week, John Stephens, CFO for MDC Holdings, a homebuilder in Denver, said new-home sales have yet to return to averages seen prior to the housing crisis.

“While we’ve made improvements, we’re still well off of what would be considered maybe average or more of a normal basis,” Stephens told conference attendees. “We need to see improvements in consumer confidence and job growth, really, which is really going to drive homebuilding at the end of the day.”

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.”

As first noted at ZeroHedge, homebuilder sentiment is often widely at odds with the reality of actual home sales. Tyler Durden put together this chart to show how wide the chasm can be.

Click to view the chart below.

“Consumers are still hesitant, and are waiting for clear signals of full-fledged economic recovery before making a home purchase,” said NAHB Chief Economist David Crowe. “Builders are reacting accordingly, and are moving cautiously in adding inventory.” 

Notably, the region most believed to have pent-up demand based on the extreme winter it suffered – the Northeast – saw a decline to a 33 on the HMI, while the three other regions hovered around the 50 mark.

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