Builders Reverse Recent Trend, Less Optimistic in April

Home builders shifted direction this month reversing the growing optimism they had been exhibiting since last fall.  The National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index dropped three points this month to 25 after seven straight months of increases.  This brings the index back to the same level as in January.

The Index is derived from the responses to a monthly survey in which NAHB asks its builder-members for their perceptions of the current single-family home sales market and their expectation for sales over the next six months, each on a scale of “good,” “fair,” or “poor.”  They are also asked to rate the current traffic of prospective buyers as “high to very high,” “average,” or “low to very low.”  Each set of questions is scored separately and a seasonally adjusted composite index results from those scores.  Any number over 50 for the composite or its components indicates that more builders view conditions as good than poor.

All three components also declined in April.  The component gauging current sales conditions fell from 29 to 26 and the component measuring expectations was also down three points to 32.  The responses to builder traffic registered at 18, down four points from March.

Much of the decline, however, can be attributed to the Midwest where the composite fell 8 points to 23.  The South was also down, falling from 27 to 24 in one month.  The West was unchanged at 32 while the Northeast jumped four points to 29, the highest level in nearly 2 years.

 “Although builders in many markets are noting increased interest among potential buyers, consumers are still very hesitant to go forward with a purchase, and our members are realigning their expectations somewhat until they see more actual signed sales contracts,” noted Barry Rutenberg, chairman of the NAHB.

“What we’re seeing is essentially a pause in what had been a fairly rapid build-up in builder confidence that started last September,” said NAHB Chief Economist David Crowe. “This is partly because interest expressed by buyers in the past few months has yet to translate into expected sales activity, but is also reflective of the ongoing challenges that are slowing the housing recovery – particularly tight credit conditions for builders and buyers, competition from foreclosures and problems with obtaining accurate appraisals.”

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