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US Home Builder Sentiment Sags in February

Posted by Joseph Trevisani on Feb 17, 2015 10:43:00 AM

Confidence among American home builders sagged in February to the lowest level in four months as winter struck hard in half the country.

The home builders’ market index for single family homes dropped to 55 from 57 in January, according to the National Association of Home Builders, a Washington D.C. based industry group. Economists in the Bloomberg survey had forecast a gain of one to 58. Last September's reading of 59 was the highest in almost nine years, since 61 in November 2005. 

The decline in the overall index was led by a sharp fall in the prospective buyers’ traffic index which sank to 39 in February, the lowest since last July, from 44 in January.  Cold and snow in the Northeast and Midwest may have kept potential buyers from visiting homes on the market.

“Overall, builder sentiment remains fairly solid, with this slight downturn largely attributable to the unusually high snow levels across much of the nation,” said NAHB Chairman Tom Woods in the statement accompanying the release. .

Sentiment among builders in the Midwest dropped from 59 to 49 in February, perhaps reflective of the difficult weather. Sentiment in the Northeast, equally had hit by the winter rose to 48 from 43 in January. Sentiment in the South was unchanged at 56 and in the West it lost one to 64 in February.

A score of higher than 50 means that a majority of the industry executives surveyed said that business conditions were good. 

The index of present sales slipped one to 61 in February and the measure of future sales was flat at 60. 

"For the past eight months, confidence levels have held in the mid- to upper-50s range, which is consistent with a modest, ongoing recovery," said the NAHB's Chief Economist David Crowe in a written comment. "Solid job growth, affordable home prices and historically low mortgage rates should help unleash growing pent-up demand and keep the housing market moving forward in the year ahead."

An improving labor market and wages gains are expected to help support home sales.  

Non-farm payrolls have averaged 336,000 in the last three months to January, the best in 17 years and combined with a 0.5 percent jump in average hourly earnings in December, 2.2 percent on the year, consumers may be feeling able to undertake the long term financial commitment of a home purchase. 

Home builders appear to agree. Housing starts were 1.089 million annualized in December, the fourth month in a row over 1 million. The January figures will be released at 8:30 am tomorrow, a 1.07 million rate is forecast.

Last year was the best twelve months for home construction since 2007 with 1.006 million starts. But even at 1 million new homes a year, the industry is still building at just 60 percent of its average of 1.7 million new homes a year in the decade from 1996 to the end of 2005 and that is without accounting for the population increase.  

Sales of previously occupied homes, the largest U.S. realty category, are also much improved from their depths in 2010; 4.92 million home changed hands last year, the best since 5.15 million in 2007, at the tail end of the housing bubble.  Over the life of this statistic, which only goes back 15 years to January 1999, and includes the peak bubble years of 2003-2007, sales have average 5.28 million annually.

 Joseph Trevisani

Chief Market Strategist

WorldWideMarkets Online Trading

Charts: Bloomberg

 nahb feb 17

existing home feb 17


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