Foreclosures Weigh on Builder Confidence in March

Builder confidence in the market for newly built, single-family homes dropped two points to 15 in March as poor weather conditions and distressed property sales posed increasing challenges to both builders and buyers, according to the latest National Association of Home Builders/Wells Fargo Housing Market Index (HMI), released today.

Three items are weighing on builder confidence, says NAHB Chief Economist David Crowe.

• The lack of available credit for new projects.
• The large number of distressed properties for sale.
• The continuing hesitancy of potential buyers due to the weak job market.

Derived from a monthly survey that NAHB has been conducting for more than 20 years, the HMI gauges builder perceptions of current single-family home sales and sales expectations for the next six months. The survey also asks builders to rate traffic of prospective buyers. Scores for each component are then used to calculate a seasonally adjusted index where any number over 50 indicates that more builders view conditions as good than poor.

In declining two points to 15 this March, the HMI returned to where it was in January 2010. Each of the HMI’s components fell in March; current sales conditions declined two points to 15, sales expectations declined three points to 24 and the traffic of prospective buyers declined two points to 10.

Regionally, the HMI results were mixed. While the Northeast posted a five-point gain to 23 and the West posted a one-point gain to 15, the Midwest HMI slid three points to 10 and the South HMI edged down one point to 18.

According to the NAHB, the inventory of new homes on the market is at an extremely low level. It expects a 25% improvement in new-home construction in 2010 over 2009 to rebuild inventory and meet expected pent-up demand.