The latest Housing Market Index (HMI) jointly released by the National Association of Home Builders (NAHB) and Wells Fargo showed that builder confidence fell slightly, but stayed solid despite growing risk factors.
The HMI dropped two points to 72 in March, remaining within the low to mid-70s range it has hovered around for the past six months. While the ongoing outbreak of COVID-19 presents headwinds on the horizon, the fundamentals of the housing market remain strong, resulting in a solid foundation, according to NAHB chair Dean Mon.
“Builder confidence remains solid, although sales expectations for the next six months dropped four points on economic uncertainty stemming from the coronavirus,” said Mon, a home builder and developer from Shrewsbury, New Jersey. “Interest rates remain low, and a lack of inventory creates market opportunities for single-family builders.”
Calculated via a monthly survey that the NAHB has conducted for three decades, the HMI is a seasonally adjusted index that evaluates builder perceptions of current single-family home sales, as well as sales expectations for the next six months. Readings over 50 indicate that more builders view conditions as good than poor.
The HMI rose above 70 in October last year, before reaching a post-recession high of 76 two months later — a marked turnaround from a reading of 58 at the beginning of the year. It then spent the next three months retreating slightly to its current reading.
Each of the HMI’s regional indices are also solid. Looking at three-month moving averages, the Northeast’s index increased two points to 64, while the Midwest decreased two points to 66, the South dropped one point to 77 and the West inched backward one point to 82.
Still, the NAHB noted on its Eye on Housing blog that downpayment requirements remain a limiting factor despite the low rate environment, and NAHB chief economist Robert Dietz acknowledged that the survey’s timing may paint a premature picture given the developing coronavirus threat.
“It is important to note that half of the builder responses in the March HMI were collected prior to March 4, so the recent stock market declines and the rising economic impact of the coronavirus will be reflected more in next month’s report,” Dietz said.
“Overall, 21 percent of builders in the survey report some disruption in supply due to virus concerns in other countries such as China. However, the incidence is higher (33%) among builders who responded to the survey after March 6, indicating that this is an emerging issue.”
Author
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Arnie Aurellano is chief reporter and website content editor at Scotsman Guide.