Builders are no more confident now in the market for new single-family homes than they were in the post tax-credit doldrums of September, 2010, according to the National Association of Home Builders/Wells Fargo Housing Market Index.
The index, released Wednesday, slipped three points from May to a reading of 13, the lowest it has been since last September and three points below analyst expectations of 16.
"Builder confidence has waned even further as economic growth has stalled, foreclosures have continued to hit the market and the cost of building a home has risen," said David Crowe, NAHB chief economist . "Meanwhile, potential new-home buyers are being constrained by difficulty selling their existing homes, stringent lending requirements, and general uncertainty about the economy. Economic growth must pick up in order for housing to gain the momentum it needs to get back on track."
The component indices were down across the board. The component gauging current sales conditions and the component gauging traffic of prospective buyers each fell two points, to 13 and 12, respectively. The component gauging sales expectations in the next six months fell four points to tie the record low 15 set in February and March of 2009.
Only the Northeast was up, rising two points to 17. The Midwest fell three points to 11, the South dropped two points to 14 and the West lost four points to 12.
"Builders are being squeezed by the continuing weakness in existing-home prices--against which they must compete--as well as rising material costs,"said Bob Nielsen, a home builder from Reno, Nev. who is this year's NAHB Chairman. "In addition to the ongoing impacts of distressed property sales on home prices, appraisal values and consumer confidence, rising costs for materials such as roofing, copper, wallboard, vinyl siding and other components have made it extremely difficult to construct a new home and sell it at a price that covers the costs."
Any HMI reading under 50 indicates a lack of confidence in the market.
Michael Rehaut at J.P. Morgan Securities was skeptical of the justification for the decline in the index. "Overall, we view this data point with, at most, only slight disappointment, as we believe recent demand indicators--i.e., the MBA Purchase Index, HOV's May comments, and takeaways from our conference held on May 24-25--have been fairly stable," he wrote in an investor note. "Specifically, we note the MBA Purchase Applications Index over the last six weeks has been highly consistent, averaging 190 during this period, with three of the last four weeks at 191. Moreover, we point out that last week HOV reported May sales pace improving 26% vs. April. Lastly, at our Homebuilding and Building Products Conference held on May 24-25, MTH and RYL commented that May order trends appeared similar to April, while the overall feel of the adjacent industry conference appeared to project a calmness and steadiness with regards to current market conditions."