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Home Builders’ Steady Confidence Bodes Well for Single-Family Market

construction-twoConfidence among home builders has been on a series of ups and downs over the last few months, showing slow, but continued progression in the single-family sector, but they are still faced with concerns about labor and lot shortages.

Home builder confidence in the market for newly-built single-family homes was flat for the month of March at 58, according to the National Association of Home Builders/Wells Fargo Housing Market Index (HMI).

Last month, builder confidence came in at 58, 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.

“Confidence levels are hovering above the 50-point mid-range, indicating that the single-family market continues to make slow but steady progress,” said NAHB Chairman Ed Brady, a home builder and developer from Bloomington, Illinois.  “However, builders continue to report problems regarding a shortage of lots and labor.”

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.” Any number over 50 indicates that more builders view conditions as good than poor.

HMI ComponentsAccording to the NAHB, the HMI component gauging current sales conditions was steady in March at 65, while the index measuring sales expectations in the next six months dropped three points to 61. In addition, the component that measures buyer traffic increased four points to 43, the report noted.

“While builder sentiment has been relatively flat for the last few months, the March HMI reading correlates with NAHB’s forecast of a steady firming of the single-family sector in 2016,” said NAHB Chief Economist David Crowe. “Solid job growth, low mortgage rates, and improving mortgage availability will help keep the housing market on a gradual upward trajectory in the coming months.”

Crowe added that the stable but modest level of sentiment aligns with recent construction and sales reports. The Census Bureau and HUD recently reported that January single-family start and permits were down but remained well above the 2015 annual averages. Meanwhile, new homes sales also fell in January but are expected to bounce back.

"Builders remain concerned about the availability and cost of labor and land," Crowe said. "Higher costs for those two elementary feeds into home building are driving up the price of homes and making it even more difficult to answer the budding demand from first time home buyers. Increased equity in the hands of existing home owners allow those buyers to trade up but still leaves the first time buyer stretched."

He continued, "The March reading of the HMI is in line with NAHB’s expectation for a modest but steady increase in home sales as buyers do begin to leave their winter hibernation, look around for new home options and finally break that pent up demand dam."

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