NAHB: Homebuilders Remain Confident Despite Construction Decline

The National Association of Home Builders says continued job growth and low mortgage rates are keeping builders positive even though housing starts decreased yet again this month.

Rodney Bosch

A monthly index that tracks single-family homebuilders’ confidence fell in November from a recent high.

Builder confidence in the market for newly-built single-family homes shed one point to 70 in November, according to the latest National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index (HMI). The previous two months had the highest sentiment levels in 2019, according to an announcement on Monday.

“Single-family builders are currently reporting ongoing positive conditions, spurred in part by low mortgage rates and continued job growth,” states NAHB Chairman Greg Ugalde, a home builder and developer from Torrington, Conn. “In a further sign of solid demand, this is the fourth consecutive month where at least half of all builders surveyed have reported positive buyer traffic conditions.”

Derived from a monthly survey that NAHB has been conducting for 30 years, the NAHB/Wells Fargo Housing Market Index assesses builder perceptions of current single-family home sales and sales expectations for the next six months as “good,” “fair” or “poor.”

The survey also asks builders to rate traffic of prospective buyers as “high to very high,” “average” or “low to very low.” 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.

The HMI index gauging current sales conditions fell two points to 76 and the measure charting traffic of prospective buyers dropped one point to 53. The component measuring sales expectations in the next six months rose one point to 77.

“We have seen substantial year-over-year improvement following the housing affordability crunch of late 2018, when the HMI stood at 60,” says NAHB Chief Economist Robert Dietz. “However, lot shortages remain a serious problem, particularly among custom builders. Builders also continue to grapple with other affordability headwinds, including a lack of labor and regulatory constraints.”

Among regional HMI scores, the Northeast posted a two-point gain to 62; the West gained three points to 81; and the South edged one point higher to 74. The Midwest remained unchanged at 58.

Construction Starts Decline Again

The latest HMI numbers join an announcement on Monday by Dodge Data & Analytics, which said new construction starts declined 11% in October to a seasonally adjusted annual rate of $696.3 billion.

That marks the third consecutive monthly drop in construction starts activity. Nonresidential building starts declined 20% from September to October, while nonbuilding starts dropped 14%. Residential starts declined 2%. The October statistics pushed the Dodge Index down to 147 (2000=100) compared to 166 in September.

Through the first ten months of 2019, total construction starts were 4% lower than in the same period the prior year. Both residential and nonresidential construction starts were down through ten months, although nonbuilding starts remained on the plus side due to gains in electric utilities/gas plants and environmental public works.

“Concern over the health of the U.S. economy continues to play a key role in the pullback in starts over the past few months,” states Richard Branch, chief economist for Dodge Data & Analytics. “However, solid real estate fundamentals (such as vacancy rates) in addition to stable public funding will continue to support a modest level of construction activity across both public and private projects.”


This article originally appeared on our sister publication Security Sales & Integration‘s website.