Builder Confidence Declines But Remains Solid Amid Rising Risks

Builder confidence in the market for newly-built single-family homes fell two points to 72 in March, according to the latest National Association of Home Builders/Wells Fargo Housing Market Index (HMI). Sentiment levels have held in a firm range in the low- to mid-70s for the past six months.

Builder confidence remains solid, although sales expectations for the next six months dropped four points on economic uncertainty stemming from the coronavirus. Interest rates remain low, and a lack of inventory creates market opportunities for single-family builders. However, downpayment requirements are a limiting factor amid lower mortgage interest rates.

More fundamentally, half of the builder responses in the March HMI were collected prior to March 4, so the recent stock market declines and the rising economic impact of the coronavirus will be reflected more in next month’s report.

Overall, 21 percent of builders in the survey report some disruption in supply due to virus concerns in other countries such as China. However, the incidence is higher (33 percent) among builders who responded to the survey after March 6, indicating that this is an emerging issue.

Derived from a monthly survey that NAHB has been conducting for 30 years, 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.” Scores for each component are then used to calculate a seasonally adjusted index where any number over 50 indicates that more builders view conditions as good than poor.

The HMI index gauging current sales conditions fell two points to 79, the component measuring sales expectations in the next six months dropped four points to 75 and the gauge charting traffic of prospective buyers also decreased one point to 56.

Looking at the three-month moving averages for regional HMI scores, the Midwest fell two points to  66, the South moved one point lower to 77 and the West posted a one-point decline to 82. The Northeast rose two points to 64.

Article written by Robert Dietz on March 17, 2020 for NAHB Eye On Housing