Homebuilder sentiment falls 3 points as buyers retreat

Higher costs for land and labor are casting an even bigger chill over homebuilders than the brutal February weather plaguing much of the nation.

A monthly measure of builder sentiment fell three points from an upwardly revised January reading. The National Association of Home Builders/Wells Fargo Housing Market Index (HMI) now stands at 58. The expectation had been for sentiment to remain flat at 60. Anything above 50 is considered positive sentiment. The index stood at 55 in February of 2015.

“Though builders report the dip in confidence this month is partly attributable to the high cost and lack of availability of lots and labor, they are still positive about the housing market,” said NAHB Chairman Ed Brady, a homebuilder and developer from Bloomington, Illinois, in a release. “Of note, they expressed optimism that sales will pick up in the coming months.”

Contractors carry a wall section on a home under construction at the Toll Brothers Inc. Cantera at Gale Ranch housing development in San Ramon, California.

David Paul Morris | Bloomberg | Getty Images
Contractors carry a wall section on a home under construction at the Toll Brothers Inc. Cantera at Gale Ranch housing development in San Ramon, California.

More than three quarters of homebuilders surveyed by the NAHB said they expect the labor shortage to worsen in 2016, as construction increases. Builders rate the high cost of labor as their primary concern this year, above the cost of land and restrictions brought on by environmental regulations. The number of unfilled construction jobs jumped in December, even as hiring rose. There were roughly 207,000 unfilled construction sector jobs at the end of December, according to the Bureau of Labor Statistics. That beats the previous high of 168,000 set in March of last year and is the highest count since early 2007.

While NAHB officials cite labor and land issues, their numbers show buyer demand as perhaps more concerning. Of the HMI’s three components, the index measuring current sales fell three points to 65, and buyer traffic dropped five points 39. Only sales expectations over the next six months rose, one point, to 65.

Demand for newly built homes is rising, but largely due to record low supply of existing homes for sale. The spring season, traditionally the busiest for home sales, usually brings thousands of new listings to the market, but even that boost in supply will not come close to meeting demand. Supply actually fell in December and January, which is usually when slower sales help to bolster supply.

Buyer demand is stronger, but it has taken a hit from all the volatility in financial markets. Another monthly sentiment index, this one gauging homebuyer sentiment, fell in January, with fewer households reporting income growth.

“Housing affordability is being constrained because the pace of growth in real income has not kept up with gains in real home prices as demand has grown faster than supply,” said Doug Duncan, senior vice president and chief economist at Fannie Mae, which conducts the survey.

Buyers are getting a boost from near record low mortgage rates and increased credit availability. An increasing share of buyers, however, expect rates to rise at some point this year.

“Builders are reflecting consumers’ concerns about recent negative economic trends,” said NAHB Chief Economist David Crowe. “However, the fundamentals are in place for continued growth of the housing market. Historically low mortgage rates, steady job gains, improved household formations and significant pent up demand all point to a gradual upward trend for housing in the year ahead.”

Regionally, on a three-month moving average, home builder sentiment in the Midwest fell one point to 57, the West registered a three-point drop to 72 and the Northeast and South each posted a two-point decline to 47 and 59, respectively.

[Source:- CNBC]