Confidence Among U.S. Homebuilders Declines to Eight-Month Low

Why the Dip in Home Builder Sentiment?

Confidence among U.S. homebuilders unexpectedly fell in March to an eight-month low as prospective buyers were in little rush to shop for properties ahead of the busier spring selling season.

The National Association of Home Builders/Wells Fargo sentiment gauge dropped to 53 from 55 in February, figures from the Washington-based group showed Monday. The median forecast in a Bloomberg survey called for a gain to 56.

Sales of single-family homes declined to a five-month low and builder optimism about the outlook failed to improve, the report also showed. Low mortgage rates and job creation may help spur homebuyer interest in coming months.

“Even with this slight slip, the HMI remains in positive territory and we expect the market to improve as we enter the spring buying season,” NAHB Chairman Tom Woods, a homebuilder from Blue Springs, Missouri, said in a statement.

Estimates in a Bloomberg survey of 47 economists ranged from 50 to 58. Readings greater than 50 mean more respondents report good market conditions.

Other data today showed factory production fell in February for a third straight month, a sign that cutbacks in manufacturing will hold back the economy this quarter. The 0.2 percent decrease followed a 0.3 percent drop in January that was initially estimated as a gain, according to figures from the Federal Reserve. Total industrial production, which also includes mines and power plants, rose 0.1 percent, propelled by a record surge in utility use as temperatures plummeted.

Buyer Traffic

The homebuilder group’s gauge of prospective buyer traffic declined to a nine-month low of 37 in March from 39 a month earlier. The index of current single-family home sales dropped to 58, the weakest since October, from 61.

The measure of the six-month sales outlook held at 59, the lowest since June.

Builder confidence declined in three of four regions, led by an 11-point slump in the West. Sentiment also fell in the Northeast and South. It rose in the Midwest.

Potential buyers were slow to return to the market after colder weather in parts of the country helped limit sales and buyer traffic in the previous month.

February Weather

In the region from the Mississippi River to the East Coast, Americans in 23 states experienced a “top-10-coldest February” in National Oceanic and Atmospheric Administration data back to the start of 1895.

Homebuilders such as Red Bank, New Jersey-based Hovnanian Enterprises Inc. are upbeat warmer weather will help revive sales.

“We remain optimistic for the remainder of the spring selling season,” Chief Executive Officer Ara Hovnanian said on a March 12 earnings call.

A stronger pace of job gains may help give Americans the confidence to make a big purchase. Employers added 295,000 workers to payrolls last month, more than forecast, and the unemployment rate dropped to 5.5 percent, the lowest in almost seven years.

Still-low borrowing costs also are supporting prospective buyers. The average 30-year, fixed-rate mortgage was 3.86 percent in the week ended March 12, according to data from Freddie Mac in McLean, Virginia. That’s below the average 4.26 percent rate since the last recession ended in June 2009.

Consumer Sentiment

At the same time, weaker income expectations and a rebound in gasoline prices are weighing on consumer confidence, which declined in March to a four-month low. The University of Michigan said Friday its preliminary consumer sentiment index fell to 91.2 this month, lower than any of the 68 projections in the Bloomberg survey, from 95.4 in February.

Average hourly earnings rose a weaker-than-forecast 0.1 percent in February. Earnings were up 2 percent over the past year, also less than projected and matching the increase on average since the expansion began in mid-2009.

The cost of a gallon of regular-grade gas was $2.42 as of March 15, up from $2.03 on Jan. 25 that was the lowest since March 2009, according to motoring group AAA. Prices had been declining steadily since $3.67 a gallon at the end of June.

A report tomorrow is projected to show housing starts declined in February. Builders broke ground on 1.04 million homes at an annualized pace in last month, down from a 1.07 million rate in January, according to the median forecast of economists surveyed before figures from the Commerce Department. More than 1 million homes were started last year.

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