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Builder Confidence Remains Subdued in May: NAHB

H.S. Borji
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Builder Confidence Remains Subdued in May: NAHB

US homebuilder confidence remained subdued in May, reflecting broader market sentiment about the modest housing recovery.

The Housing Market Index, courtesy of the National Association of Home Builders, declined one point to 45. Last month’s indicator was downwardly revised from 47 to 46. A median estimate of economists called for a reading of 49. The 50 level separates positive sentiment from negative.

The index plunged ten points in February, as inclement weather resulted in a sharp decline in buyer activity.

Two of the index’s three main components rose this month. The gauge of sales expectations over the next six months increased one point to 57, while the measure of homebuyer traffic rose two points to 33. The gauge of current sales declined two points to 48.

Builder optimism in the South improved slightly, rising from 47 to 48, according to the three-month moving average for regional HMI levels. The Northeast region was unchanged at 33. The confidence indicator for the Midwest fell one point to 47 and the West posted a four-point drop to 47.

“Builders are waiting for consumers to feel more secure about their financial situation,” said NAHB chief economist David Crowe in a press release. “Once job growth becomes more consistent, consumers will return to the market in larger numbers and that will boost builder confidence.”

Affordability continues to be a major obstacle for the housing recovery. Rising mortgage rates and higher house costs in an uncertain economic climate have kept many potential buyers out of the market.

According to Freddie Mac, the average 30-year fixed rate mortgage eased down to 4.2 percent. The 30-year fixed rate has hovered below 4.3 percent in four of the last five weeks.

“However, builders expressed some optimism that sales will pick up in the coming months,” partly a reflection of the improving labour market, said NAHB chairman Kevin Kelly.

The labour market recovery has gained traction in recent months, offering hope a better jobs market will boost buyer traffic. Jobs growth averaged 238,000 between February and April, the Labor Department reported earlier this month. Nonfarm payrolls rose 288,000 in April and were revised up to 203,000 in March. However, wage growth continues to be weak, with average hourly earnings failing to grow in April.

The Federal Reserve is puzzled by the prolonged slowdown in housing activity, Fed Chair Janet Yellen told the Joint Economic Committee last week. Housing activity has “remained disappointing so far this year,” Yellen said in her testimony. Yellen added the economy is expected to expand at a faster rate this year, supporting the view the housing recovery will accelerate as unemployment continues to decline.

New home sales declined 14.5 percent in March, while building permits – a measure of residential construction intentions – fell 2.4 percent. Existing home sales in March fell 0.2 percent to a 20-month low.

The Commerce Department will report on April permits and groundbreaking Friday. Economists say building permits probably rose 3 percent in April, and groundbreaking accelerated at a faster pace.

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