A builders’ confidence index fell four points in June and sank to its lowest level since April 1995, the National Association of Home Builders reported this week.
The NAHB/Wells Fargo Housing Market Index is derived from a monthly survey of builders and gauges builder perceptions of current and future home sales. The survey asks builders to rate current sales and sales expectations for the next six months as “good,” “fair” or “poor” and also asks builders to rate the 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.
All three component indexes declined in June. The index gauging current sales was down three points to 47, while the index gauging sales expectations for the next six months fell five points to 50 and the index gauging traffic of prospective buyers declined four points, to 29, according to the announcement.
The HMI fell seven points to 40 in the Northeast, four points to 25 in the Midwest, two points to 49 in the South and one point to 61 in the West. These regional indexes are all down by similar amounts from their 1995 highs.
Rising mortgage rates, deepening affordability issues and the retreat of investors and speculators from the marketplace may be factors in the declining index, the builders’ group announced.
NAHB Chief Economist David Seiders said in a statement, “We now expect new-home sales to be off by 13 percent from the record posted in 2005. Single-family starts, supported by large builder backlogs of unfilled orders and some continuing reconstruction in the wake of last year’s hurricanes, should be down by about 9 percent from the 2005 record.”
He added, “These forecasts naturally are subject to a considerable degree of risk. The downside risks include the potential for large numbers of sales cancellations and re-sales by the investor/speculator group as well as more aggressive tightening of monetary policy than we’re assuming in our baseline forecast.”
David Pressly, NAHB president, said in a statement, “The HMI is a measure of builder sentiment — and attitudes may vary by a greater degree than actual market activity.”
HMI tables can be accessed online at www.nahb.org/hmi.