Home/Mortgages/New Home Builders Not Seeing a Bright Future

June 16, 2011 (Jeff Alan)

Confidence among the nation’s new single-family home builders declined three points in June to a reading of 13 according to the National Association of Home Builders/Wells Fargo Housing Market Index (HMI). The HMI had been holding steady, albeit at a low level, but this months rating was the lowest since September 2010.

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.

For June, every component of the HMI fell. The largest drop was reported in the component gauging sales expectations over the next six months, which dropped 4 points to a new record low of 15 that has only been matched in February and March of 2009.

The component gauging current sales conditions and the component gauging traffic of prospective buyers each fell two points, to 13 and 12, respectively.

All regions, but the Northeast, experienced declines in this month’s HMI. The Midwest dropped three points to 11, the South dropped two points to 14 and the West dropped four points to 12. The Northeast gained two points, bringing its HMI score to 17 for the month.

“Builders are being squeezed by the continuing weakness in existing-home prices – against which they must compete — as well as rising material costs,” said NAHB Chairman Bob Nielsen, a home builder from Reno, Nev. “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.”

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