Disappointing Sales Knock Down Builder Confidence

The National Association of Home Builders (NAHB) released Thursday its Housing Market Index (HMI) for May, reporting another slip in builder confidence as single-family home sales continue to disappoint.

The index, a gauge of homebuilder sentiment toward the single-family housing market, dropped to 45 from a downwardly revised reading of 46 in April. A score below 50 indicates a market viewed by more builders as “poor” rather than “good.”

With April’s revision and the latest decline, the index has been in a holding pattern since tumbling 10 points in February.

“After four months in which the HMI has shown little signs of fluctuation, it is clear that builder sentiment is becoming more in line with the market reality of a continuing but modest recovery,” said NAHB chairman Kevin Kelly. “However, builders expressed some optimism that sales will pick up in the coming months.”

Looking at the index component measuring expected sales in the next six months, builder confidence rose one point to a level of 57, aided by a rise in observed traffic from prospective buyers, which was up to a reading of 33.

Meanwhile, the current sales picture inspired little confidence, with that component dropping to 48 from a “neutral” 50 in April.

Confidence levels were flat in the North and Midwest at indexes of 34 and 45, respectively. In the South and West, sentiment was down slightly to indexes of 47 and 44, reflecting declining optimism in the country’s two most active housing regions.

“Builders are waiting for consumers to feel more secure about their financial situation,” said NAHB chief economist David Crowe. “Once job growth becomes more consistent, consumers will return to the market in larger numbers and that will boost builder confidence.”