The National Association of Home Builders/Wells Fargo Housing Market Index sank four points from march to April reaching 50 – the lowest point since February 1996 when the index slipped to 49 – the home builders group announced today.
A index of 50 indicates an equilibrium in builder confidence – any number over 50 indicates that more builders view sales conditions as good, while a number below 50 indicates that builders view sales conditions as poor.
All three component indexes slipped this month, with the largest decline registered for current single-family sales. That component declined five points to 54 in April, while the component for sales expectations in the next six months was down four points to 58 and the component gauging traffic of prospective buyers declined a single point to 39, according to the announcement.
The index is derived from a monthly survey that NAHB has conducted for about 20 years. Builders are asked whether they view 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 used to calculate a seasonally adjusted index.
“Home builders definitely view this as something of a transition period, where demand from speculators is easing off and the market is heading to a more sustainable level of activity following the record-breaking performance of 2005,” said David Pressly, NAHB president and a home builder from Statesville, N.C., in a statement. “This process should help restore a healthier balance between supply and demand going forward.”
David Seiders, NAHB chief economist, said in a statement, “With mortgage rates back up to the 6.5 percent range and serious affordability issues in the highest-priced markets, today’s HMI numbers are neither surprising nor alarming. Indeed, a reported reduction in home buying by investors/speculators in the market for new single-family homes is a positive development. Furthermore, we expect solid growth in employment and household income to essentially offset the minor increases in the interest-rate structure that we’re projecting for the balance of this year.”
Regionally, only builders in the West registered greater confidence in market conditions in April than in the previous month, according to the announcement. The index gained four points to 70 in the West, while posting a seven-point decline to 49 in the Northeast; a four-point decline to 55 in the South; and a five-point decline to 32 in the Midwest.
NAHB represents about 225,000 members.
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