Builder Confidence Unexpectedly Slides on Shaky Foundation

“Following eight consecutive months of improvement, builder confidence leveled off in January and has since edged down several points,” commented Rick Judson, chairman of the National Association of Home Builders, in a statement released on Monday.

The NAHB and Wells Fargo produce an index of homebuilder sentiment that is updated monthly. Homebuilders are surveyed about their impression of general economic and housing-market conditions. The main index is a weighted average of separate diffusion indexes such as current sales of new homes, expectations for new home sales in the next six months, and current home-buyer traffic. The index is split at 50, where readings above that level indicate that more homebuilders describe conditions as good, while readings below indicate that more homebuilders describe conditions as poor.

For March, the NAHB reported that the index fell two points to 44, a surprise compared to expectations for growth of one point. However, some degree of weakness in the March report was expected, given that February’s traffic component fell four points to just 32, a fairly clear indicator that near-term sales may be soft.

“Although many of our members are reporting increased demand for new homes in their markets, their enthusiasm is being tempered by frustrating bottlenecks in the supply chain for developed lots along with rising costs for building materials and labor. At the same time, problems with appraisals and credit availability remain considerable obstacles to completing deals,” Judson commented, closely echoing concerns voiced over the past few months…