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Builder Confidence Shaken by Cost and Availability of Lots and Labor

construction-twoBuilder confidence in the market for newly-built single-family homes is still doing well, but has dropped since last month, according to the National Association of Home Builders/Wells Fargo Housing Market Index, or HMI, released Tuesday.

The latest HMI showed builder confidence to be at 58 in February, down from January’s 61 and seven points lower than its recent peak  of 65 in October. That said, the index is still well above the tipping point of 50 and three points above last February’s number.

NAHB Chairman Ed Brady attributed the dip to the high cost and lack of availability of lots and labor, but said that February’s index shows builders are still generally optimistic about the housing market.

“Of note, they expressed optimism that sales will pick up in the coming months,” Brady said, despite that consumers have expressed some worries about the housing market over the past few months.

Indeed, the HMI component measuring sales expectations in the next six months rose one point to 65 in February, which is a good sign that builders are optimistic overall. Any number over 50 indicates that more builders view conditions as good than poor.

David Crowe, NAHB’s chief economist said “the fundamentals are in place for continued growth of the housing market. Historically low mortgage rates, steady job gains, improved household formations and significant pent up demand all point to a gradual upward trend for housing in the year ahead.”

Broken down to the four main regions of the country, the three-month moving averages for regional HMI scores were all in slight declines. The Midwest fell one point to 57, the West registered a three-point drop to 72 and the Northeast and South each posted a two-point decline to 47 and 59, respectively, according to the report.

Weather did not appear to have a large impact in either direction on confidence, which is a major difference between last winter and this one so far. While the Northeast and Mid-Atlantic regions have had to deal with some hefty snowfalls, January indicators showed no worse decline than regions that have had little winter weather.

According to NAHB, new home purchases are “dominated by existing home sellers with very good credit, significant equity accumulation, and strong employment records.” First-time buyers, the organization announced, are missing from the new market, perhaps due to a trend toward larger houses with more bedrooms and baths that could be keeping new buyers wary.

“One downside to this trend is these same well-off new home buyers are also more likely to hold a substantial share of their wealth in equities,” NAHB stated. “The turmoil in the stock market and the general unease concerning international economic trends is most likely to affect the same group of households that are the most active in new home purchases.”

About Author: Scott_Morgan

Scott Morgan is a multi-award-winning journalist and editor based out of Texas. During his 11 years as a newspaper journalist, he wrote more than 4,000 published pieces. He's been recognized for his work since 2001, and his creative writing continues to win acclaim from readers and fellow writers alike. He is also a creative writing teacher and the author of several books, from short fiction to written works about writing.
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