Residential Building Confidence Challenged

March 03, 2011

Builder confidence in the market for newly built, single-family homes remained unchanged at 16 for a fourth consecutive month in February, according to the National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index (HMI).

The 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 "high to very high," "average" or "low to very low." Scores from each component are then used to calculate a seasonally adjusted index where any number more than 50 indicates that more builders view sales conditions as good than poor.

"While builders are starting to see more interest among potential home buyers, we are also dealing with a multitude of challenges, including competition from foreclosure properties and inaccurate appraisals of new homes, which are limiting our ability to sell," said NAHB chairman Bob Nielsen. "On top of that, an extremely tight lending environment continues to make it almost impossible to obtain credit for viable new and existing projects, and most do not see that situation improving anytime soon."

"Builders are telling us that some pockets of optimism have begun to emerge, but many prospective purchasers are concerned about selling their existing home in the current market, or face difficulty securing credit for a home purchase—even when they are well-qualified," said NAHB chief economist David Crowe. "Adding these concerns to the severe difficulty that builders continue to confront in obtaining acquisition, development and construction financing, you can understand why builder sentiment has not improved over the past four months."

On a positive note, two out three of the HMI’s component indices edged slightly upward in February. The component gauging current sales conditions improved by two points to 17, while the component gauging sales expectations in the next six months rose a single point, to 25. Meanwhile, the component gauging traffic of prospective buyers held unchanged, at 12. On a regional basis, HMI scores were mixed, with gains reported in the Northeast and the South, and declines in the Midwest and the West.

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