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Builder Confidence Slips in February, South Leads Declines

Led by a sharp drop in the South, builder confidence slipped in February to 46--the lowest level since November--the ""National Association of Home Builders"":http://www.nahb.org/news_details.aspx?sectionID=134&newsID=15792 (NAHB) reported Tuesday. Economists had expected the Housing Market Index (HMI), a measure of confidence, would improve to 48 from January's reading of 47.

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The national index has stalled since reaching an 80-month high of 47 in December.

Builder confidence in the South dropped seven points to 44, its lowest level since October. The seven-point regional decline was the largest since 2006, when the South├â┬ó├óÔÇÜ┬¼├óÔÇ×┬ós index fell nine points from July to August as the housing market began its decline. Confidence rose in all of the other three census regions led by a five-point boost in the Northeast, the result of building activity in the recovery from Superstorm Sandy.

Nationally, two of the three index components--current single-family sales and buyer traffic--declined, while the assessment of sales for the next six months edged up.

NAHB reported a four-point drop in buyer traffic, the first since a similar four-point drop last May. That decline was followed by a 2.4 percent dip in new home sales in June. Buyer traffic in December was at its lowest level since September.

The current sales index fell one point to 51, the first drop since October. The drop in the overall index was the first since April.

The one-point increase in the outlook for sales for the next six month reversed a one-point drop in January.

With the February report, the total index remained below 50--the tipping point between a positive and negative market assessment--for the 82nd straight month. [COLUMN_BREAK]

The last time the HMI was above 50 was April 2006, when the index was at 51 and falling. NAHB began in the Index in 1985, and it peaked at 78 in December 1998.

The dip in the current sales should be reflected in the government's new homes sales report to be issued next Tuesday.

That the HMI was flat in January was likely the impact of the fiscal cliff negotiations in which housing tax breaks were said to be on the table. The February index reading was the first since the end of the payroll tax holiday, which meant take-home pay dipped for all salaried employees, making a new mortgage obligation an even greater strain on household budgets.

Indeed, NAHB chairman Rick Judson, a home builder from Charlotte, North Carolina, cited ""ongoing uncertainties about job growth and consumer access to mortgage credit"" as one of the reasons for the drop in confidence. At the same time, he said, ""[B]uilders are now confronting rising costs for building materials and, in some markets, limited availability of labor and lots as demand for new homes strengthens.""

Even with the drop in February, the overall index is up 18 points in the last year, the 20th straight month of year-over-year improvement. The current sales index has risen 26 points in the last year, the sales forecast measure is up 20 points in the last year, and the traffic index is up 19 points.

The HMI, considered a measure of builder confidence, could be reflected in permits and starts data reported for February. That report from the Census Bureau will be issued in March. Meanwhile, Census will report Wednesday on permits and starts for January, when the index read 47.

The index, built based on surveys conducted jointly by the NAHB and Wells Fargo, 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 from each component are then used to calculate a seasonally adjusted index where any number over 50 indicates that more builders view sales conditions as good than poor.

_Hear Mark Lieberman every Friday on P.O.T.U.S. radio, Sirius-XM 124, at 6:40 a.m. and again at 9:40 Eastern time._

About Author: Mark Lieberman

Mark Lieberman is the former Senior Economist at Fox Business Network. He is now Managing Director and Senior Economist at Economics Analytics Research. He can be heard each Friday on The Morning Briefing on POTUS on Sirius-XM Radio 124.
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