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Builder confidence continues downward spiral

Homebuilder confidence continued to decline in March as the industry feels the residual effects of tight lending standards and appraisal difficulties.

The National Association of Home Builders/Wells Fargo Housing Market Index continued to fall away from the 50-point mark, dropping two more points from last month to 44 in March. Markets with builder confidence scores above 50 are generally considered more optimistic, while declines under the 50-point mark suggest builders are growing more negative about conditions in the sector.

After eight consecutive months of improvement, builder confidence leveled off in January and has continued to decline ever since.

“Although many of our members are reporting increased demand for new homes in their markets, their enthusiasm is being tempered by frustrating bottlenecks in the supply chain for developed lots along with rising costs for building materials and labor,” noted NAHB Chairman Rick Judson.

“At the same time, problems with appraisals and credit availability remain considerable obstacles to completing deals,” Judson added.

David Crowe, chief economist of NAHB, explains that home building is starting to suffer growth pains as the infrastructure that supports it works to re-establish itself. This, coupled with tight credit and below-price appraisals, are affecting homebuilders’ confidence.

“During the Great Recession, the industry lost home building firms, building material production capacity, workers who retreated to other sectors and the pipeline of developed lots. The road to a housing recovery will be a bumpy one until these issues are addressed, but in the meantime, builders are much more optimistic today than they were at this time last year,” said Crowe.

The component of the survey that gauges current sales conditions dropped four points to an index score of 47, the component measuring sales expectations in the next six months rose one point to an index score of 51 and the component gauging traffic of prospective buyers inched up three points to 25 in March.

“Though the today’s report is mostly negative, the readings on future sales and on traffic may help offset negative reaction in today’s stock market,” said analysts at Econoday. 

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