Homebuilder Confidence in U.S. Unexpectedly Dropped in April

Confidence among U.S. homebuilders unexpectedly fell in April for a third month, restrained by rising costs for materials and financing restrictions.

The National Association of Home Builders/Wells Fargo index of builder confidence dropped to 42, the lowest since October, from 44 in March, the Washington-based group said today. Economists projected an index of 45, according to the median estimate in a Bloomberg survey. Readings below 50 mean more respondents said conditions were poor.

“Many builders are expressing frustration over being unable to respond to the rising demand for new homes due to difficulties in obtaining construction credit, overly restrictive mortgage lending rules and construction costs that are increasing at a faster pace than appraised values,” Rick Judson, the group’s chairman and a builder from Charlotte, North Carolina, said in a statement.

The report showed builders grew more concerned about current sales and buyer traffic, indicating demand has cooled along with the rest of the economy. Nonetheless, residential construction firms were the most optimistic about future sales than at any time in six years, a sign the industry will keep contributing to the expansion.

Manufacturing in the New York region expanded less than projected in April as orders cooled and sales stagnated, another report today showed. The Federal Reserve Bank of New York’s general economic index dropped to 3.1 this month from 9.2 in March. Readings exceeding zero signal expansion in New York, northern New Jersey and southern Connecticut. The median projection of 47 economists surveyed by Bloomberg was 7.

Stocks Drop

Shares held earlier losses after the homebuilders report as China’s economy grew at a slower pace than economists forecast. The Standard & Poor’s 500 Index fell 0.7 percent to 1,578.01 at 10:34 a.m. in New York. The S&P Supercomposite Homebuilding index dropped 3.1 percent.

Projections for homebuilder confidence in the Bloomberg survey of 45 economists ranged from 43 to 47.

The homebuilder gauge, which was first published in January 1985, averaged 55 in the five years leading up to the 18-month recession in December 2007. It reached a record low of 8 in January 2009. In December and January, it reached the highest level in more than six years.

Component Breakdown

This month the builders group’s index of current single-family home sales declined to 45 following March’s reading of 47. The gauge of buyer traffic fell to 30 from 34.

The measure of sales expectations for the next six months climbed to 53, the highest since February 2007, from 50 in March.

A Commerce Department report tomorrow may show builders broke ground on 930,000 houses at an annualized rate in March, the second-strongest pace in more than four years, according to the median forecast of economists surveyed by Bloomberg.

The issues with lack of access to credit is probably more of a concern for smaller builders, said Stuart Miller, chief executive officer at Lennar Corp., the third-largest homebuilder by revenue, said on a March 20 conference call.

“The homebuilder confidence survey is primarily a polling of smaller private builders,” Miller said. “Their lowering confidence reflects their limited access to capital and in turn a limited access to lands. Late participants in the land market are having difficulty participating in the market recovery.”

Orders Jump

Miami-based Lennar last month reported better-than-estimated profit and a 34 percent jump in orders for the three months through February compared with the same time in 2012.

KB Home, the best-performing U.S homebuilder stock this year, reported last month a narrower loss for its fiscal first quarter as sales and prices climbed.

“Although the pace of the housing market recovery is gaining momentum, it is important to keep in mind that we are still in the early stages of the recovery, and there’s a long way to go before the industry reaches normalized activity levels,” Jeffrey Mezger, chief executive officer of the Los Angeles-based homebuilder, said on a March 21 earnings call.

All regions showed a decline in confidence, with builders in the Midwest leading the decrease, today’s report showed. That region’s index dropped 8 points to 41 this month.

“Supply chains for building materials, developed lots and skilled workers will take some time to re-establish themselves following the recession, and in the meantime builders are feeling squeezed by higher costs and limited availability issues,” NAHB Chief Economist David Crowe said in a statement. “That said, builders’ outlook for the next six months has improved due to the low inventory of for-sale homes, rock bottom mortgage rates and rising consumer confidence.”

The confidence survey asks builders to characterize current sales as “good,” “fair” or “poor” and to gauge prospective buyers’ traffic. It also asks participants to gauge the outlook for the next six months.

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