Confidence among new home builders cooled considerably this month. The National Association of Home Builders (NAHB) said its Housing Market Index (HMI), produced as a joint venture with Wells Fargo Bank dropped three pointsConfidence among new home builders cooled considerably this month. The National Association of Home Builders (NAHB) said its Housing Market Index (HMI), produced as a joint venture with Wells Fargo Bank dropped three points to 58 from an upwardly revised January number of 61 (from 60). The HMI, a measure of builder confidence in the new home market, has declined 7 points since reaching a decade-long high of 65 in October and the current reading is the lowest reading for the composite index since May 2015. Analysts surveyed by Econoday has expected a composite reading of 61.
The HMI is derived from a monthly survey NAHB conducts among its new home builder members. They are asked to gauge the current market for new homes as "good," "fair" or "poor" and to do the same regarding their expectations over the next six months. They are also asked 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.
NAHB Chairman Ed Brady said, "Though builders report the dip in confidence this month is partly attributable to the high cost and lack of availability of lots and labor, they are still positive about the housing market. Of note, they expressed optimism that sales will pick up in the coming months."
The HMI component measuring sales expectations in the next six months did rise, by 1 point to 65. The index measuring current sales conditions was down three points to 65 and the component charting buyer traffic dropped sharply by five points to 39. That last number matched the 2015 traffic component as the most recent index low.
"Builders are reflecting consumers' concerns about recent negative economic trends," said NAHB Chief Economist David Crowe. "However, 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."
Looking at the three-month moving averages for regional HMI scores, all four regions registered 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.