Builder confidence dropped a notch in March, according to the National Association of Home Builders/Wells Fargo Housing Market Index.

Derived from a monthly survey that the home builder association has been conducting for nearly 20 years, the NAHB/Wells Fargo HMI gauges builder perceptions of current single-family home sales and sales expectations for the next six months as “good,” “fair” or “poor.”

The survey also asks builders to rate traffic of prospective buyers as either “high to very high,” “average” or “low to very low.” Scores for each component are then used to calculate a seasonally adjusted index where any number over 50 indicates that more builders view sales conditions as good than poor.

March’s HMI, at 55, represented a one-point decline from February’s downwardly revised 56 reading, which followed two consecutive months at 57.

There was slight erosion of the index’s three components in the latest report, with single-point declines in the gauges for current single-family sales and traffic of prospective buyers and a two-point decline in sales expectations for the next six months, the home builder group reported.

The current and expected sales components remained at 60 and 62, respectively.

“Today’s HMI provides the latest evidence of a predicted and orderly cooling process for the nation’s single-family new-home market, which easily hit record highs in 2005,” said NAHB President David Pressly, a home builder from Statesville, N.C., in a statement.

The confidence gauge has remained within a two-point range for four consecutive months following a peak in mid-2005. NAHB Chief Economist David Seiders attributed March’s slight downshift to eroding affordability conditions and a gradual withdrawal of investor demand in some areas.

“Rising interest rates and high rates of home-price appreciation have raised the bar for homeownership to beyond what some families can reach,” he noted. “Meanwhile, a retreat of short-term investors from certain markets is helping restore equilibrium between supply and demand.”

Builder confidence declined in all regions but the Midwest in March, where it rebounded seven points to 39 from an exceptionally low point of 32 in February. Even so, the Midwest remained the region with the lowest confidence gauge, while the West remained the region with the strongest builder confidence (at 67) despite a six-point decline that erased a gain equal to that amount in February. The Northeast and South also remained in the positive range, with a two-point decline to 55 and a four-point decline to 58, respectively, the association announced.

The National Association of Home Builders has about 225,000 members involved in home building, remodeling, multifamily construction, property management, subcontracting, design, housing finance, building product manufacturing and other aspects of residential and light commercial construction.

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Send tips or a Letter to the Editor to glenn@inman.com or call (510) 658-9252, ext. 137.

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