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Builder Confidence Continues to Slip in May

by Peter Thomas Ricci

May was another lackluster month for confidence in the homebuilding sector, according to the NAHB, as homebuilding ran into some economic barriers.

Builder confidence in the market for newly built, single-family homes in May fell one point to 45 from a downwardly revised April reading of 46 on the National Association of Home Builders/Wells Fargo Housing Market Index (HMI).

That’s the fourth straight month of little to no change in the HMI, and Kevin Kelly, the NAHB’s chairman, said that such leveling suggests that the builder exuberance of 2013 is coming more in line with 2014’s sobering realities.

“After four months in which the HMI has shown little signs of fluctuation, it is clear that builder sentiment is becoming more in line with the market reality of a continuing but modest recovery,” Kelly said.

The Particulars of Builder Confidence

Although the overall HMI did fall one point, the index was not all bad news for builder confidence and the single-family home construction sector:

  • Most notably, the section of the HMI measuring sales expectations rose one point to 57, which is encouraging – after all, if any of the index’s sectors are above 50, that means that more builders see conditions as good than bad.
  • Similarly, the component measuring buyer traffic rose two points to 33.
  • The one component that did fall was that of current sales conditions, which declines two points to 48 and fell below that magical 50 threshold.

The Current State of the New Construction Sector

So, what to make of the current state of the nation’s homebuilding sector? David Crowe, the NAHB’s chief economist, said that builders are currently in a holding pattern, waiting for other economic measures to gain steam.

“Builders are waiting for consumers to feel more secure about their financial situation,” Crowe said. “Once job growth becomes more consistent, consumers will return to the market in larger numbers and that will boost builder confidence.”

Indeed, that’s the ultimate truism about today’s housing market. Though many housing fundamentals have improved – quite dramatically, in fact – there are still certain economic fundamentals, such as median income, unemployment and home vacancies, that are not only lagging, but that housing depends upon for its success, and until they begin to improve, it’s unlikely that housing can truly step beyond the shadows of the downturn.

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