Builder confidence in the market for newly built, single-family homes in February fell two points to a level of 55 on the National Association of Home Builders/Wells Fargo Housing Market Index released Tuesday.
“Overall, builder sentiment remains fairly solid, with this slight downturn largely attributable to the unusually high snow levels across much of the nation,” said NAHB Chairman Tom Woods, a homebuilder from Blue Springs, Mo.
“For the past eight months, confidence levels have held in the mid- to upper 50s range, which is consistent with a modest, ongoing recovery,” said NAHB Chief Economist David Crowe. “Solid job growth, affordable home prices and historically low mortgage rates should help unleash growing pent-up demand and keep the housing market moving forward in the year ahead.”
Nela Richardson, chief economist at the real estate brokerage Redfin, disagreed with the NAHB’s take that weather is to blame.
“The drop in builder sentiment is surprising given recent economic positives, but if builders haven’t seen enough traffic from perspective buyers, it may be due to a mismatch between what buyers want and what builders are offering,” Richardson said. “Buyers in 2015 want affordability, yet builders have been focused on the high end. There simply hasn’t been enough single-family construction at more affordable price point. And although it’s easy to point fingers at the weather, Redfin homebuyer demand data suggests that’s not the case, as even in places like Minneapolis, numbers of home tours and offers have been soaring. It’s the price point, not the temperature, that’s chilling builders.”
She wasn’t the only economist looking at the big picture instead of just the snow.
“The housing recovery remains slow. Demand for housing continues to be positive but restrained against the backdrop of minimal wage growth and lackluster savings. While home prices have slowed their rate of annual appreciation, prices are still far outpacing wage growth, making it difficult for many new homebuyers to move into the market,” said Lindsey Piegza, chief economist for Sterne Agee. “This is a longstanding trend that will continue to temper housing activity throughout 2015.
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.
Two of the three HMI components posted losses in February. The component gauging current sales conditions edged one point lower to 61 while the component measuring buyer traffic fell five points to 39.
The gauge charting sales expectations in the next six months held steady at 60.
Looking at the three-month moving averages for regional HMI scores, the Northeast fell a single point to 46, and the Midwest and South each posted a two-point drop to 54 and 57, respectively. The West rose two points to 68.