Index shows record drop in builder confidence

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Builder confidence dropped precipitously in February thanks to unusually cold weather and concerns over the cost and availability of labor and lots, the National Association of Home Builders (NAHB) reported.

The NAHB/Wells Fargo Housing Market Index (HMI) declined by 10 points in February to 46. That marked the largest month-over-month drop recorded in the survey’s history, and the index’s lowest level since May 2013.

The HMI, based on a survey that the NAHB has conducted for the last 25 years, is measured on 100-point scale. A reading over 50 indicates that more builders view conditions as good than poor.

The index is made up of three components, two of which remained in “good” territory. The component gauging sales expectations in the next six months declined six points, to 54, while the component gauging current sales conditions fell 11 points to 51. The component measuring buyer traffic — already in “poor” territory — dropped nine points to 31.

Three-month moving averages by region showed the West unchanged at 63 in February, the Midwest registering a one-point decline to 57, the South dropping three points to 53, and the Northeast posting a four-point decline to 38.

“Clearly, constraints on the supply chain for building materials, developed lots and skilled workers are making builders worry,” said NAHB Chief Economist David Crowe in a statement. “The weather also hurt retail and auto sales, and this had a contributing effect on demand for new homes.”

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Though industry groups have recently cited cold weather as a headwind to the housing market, some analysts have questioned whether any such impact has actually been significant.

According to an analysis by Trulia, historical patterns suggest that January’s unusually cold weather shouldn’t have pushed down housing activity by more than 2 percent.

The decline in builder sentiment is the latest indicator to suggest that housing market is experiencing a slowdown. Pending home sales and existing-home sales have also trended downwards in recent months.

Housing experts say that rising home prices and mortgage rates have helped induce the slump.

Source: NAHB

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