May 16, 2011 (Jeff Alan)

Future sales expectations from the nation’s homebuilders dropped two points in May, from 22 to 20, according to the latest National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index (HMI). Builder confidence in the market for newly built, single family homes remained unchanged at the low level of 16.

The HMI is derived from a survey that NAHB has been conducting for over 20 years. The index gauges builder perceptions of current single family home sales and sales expectations for the next six months as” good, fair, or poor.” Builders are also asked to rate traffic of prospective buyers as ““high to very high, average or low to very low.” Each component is then used to calculate a seasonally adjusted index where a score over 50 indicates builder’s view sales conditions as good.

Builder confidence has remained unchanged at 16 for the past six out of seven months with NAHB citing persistent concerns regarding competition from distressed property sales, lack of production credit, inaccurate appraisals and proposals to reduce government support of housing as reasons for the continuing low score.

Components of the index which gauge current sales conditions and the traffic of prospective buyers both increased by one point in May, to 16 and 14, respectively. The traffic gauge has reached its highest point since May of 2010.

“The HMI component index measuring traffic of prospective buyers increased by one point for the second time this year as prospective buyers show growing interest but remain extremely hesitant due to a number of factors,” said NAHB Chief Economist David Crowe. “Asked to identify reasons that potential customers are holding back at this time, 90 percent of builders surveyed said clients are concerned about being able to sell their existing home at a favorable price, while 73 percent said consumers think it will be difficult for them to get financing. Clearly, access to credit for both builders and buyers remains a considerable obstacle to the revival of the new-homes market.”

Regionally, the Northeast posted a 5-point decline to 15, the Midwest posted no change at 14, the South posted a one-point gain to 16, and the West posted a two-point decline to 16.

Tags: NAHB, Wells Fargo, Housing Market Index, HMI, homebuilders, sales expectations, builder confidence, single-family homes, competition, distressed properties, lack of credit, appraisals, government support