Builder Confidence Edges Downward in March

After eight consecutive months of improvement, builder confidence leveled off in January and has declined several points in subsequent months.

Builder confidence in the market for newly built, single-family homes paused for a third consecutive month in March, with a two-point reduction to 44 on the National Association of Home Builders/Wells Fargo Housing Market Index (HMI), released March 18.

"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," said NAHB chairman Rick Judson.

The NAHB/Wells Fargo Housing Market Index gauges builder perceptions of current single-family home sales, sales expectations for the next six months and the traffic rates of prospective buyers. The scores create a seasonally adjusted index where any number over 50 indicates that more builders view conditions as good than poor.

"In addition to tight credit and below-price appraisals, home building is beginning to suffer growth pains as the infrastructure that supports it tries to re-establish itself," explained NAHB chief economist David Crowe. "During the Great Recession, the industry lost home building firms, building material production capacity, workers who retreated to other sectors and the pipeline of developed lots. The road to a housing recovery will be a bumpy one until these issues are addressed."

While the HMI component gauging current sales conditions declined four points to 47, the component gauging sales expectations in the next six months and the component gauging traffic of prospective buyers both posted gains, of one point to 51 and three points to 35, respectively, in March.

The NAHB/Wells Fargo Housing Market Index tables can be found at nahb.org/hmi.