Homebuilder Confidence Declines in February, Statistics Show

Recent data shows that homebuilders in the United States lost confidence in sales forecasts and consumer activity in the month of February, as compared to the previous month.

According to the National Association of Home Builders/Wells Fargo builder sentiment index for February 2015, the homebuilder sentiment index dropped from 57 in January to 55 in February. This, however, suggested an upbeat sentiment in the homebuilding space in the run-up to spring home buying. Readings higher than 50 indicate an optimistic tenor among homebuilders, with builders seeing housing market conditions as more positive than negative.

Homebuilder Confidence

Some of the variables that have affected builder sentiment in recent months include the steady decline in mortgage rates, as well as improvements in the U.S. employment market. However, builders lost a bit of confidence in the current home sales climate and consumer traffic in the month of February; expected sales conditions, on the other hand, have not changed in the past six months. In all, the February reading is congruent with the NAHB’s forecasts for the U.S. real estate market to keep on with its slow, but steady improvement in 2015. Home buyer traffic, said the NAHB, may have slowed in February due to seasonal variables, such as recent winter storms.

Home sales moved at a glacial, lugubrious pace in 2014 compared to the year prior due to several factors, primarily rapid home price gains that made it difficult for consumers, especially first-time home buyers, to keep up. However, 2014 ended strongly in several statistical areas, including sales of newly constructed homes. This was considered a good sign, as warmer weather in the spring tends to sate consumer interest and lead to a significant increase in sales during the summer months.

In December, sales of new homes was up by 11.6 percent to an annualized rate of 481,000 with seasonality figured in; for the whole of 2014, however, only 435,000 new homes were purchased, or 1.2 percent more homes than in calendar 2013. This figure is far below the estimated peak of 700,000 new homes purchased in the 1990s.

For 2015, home sales are expected to keep on increasing, especially since home price gains continue to moderate and settle down to more realistic levels. However, U.S. economists do not expect home sales to reach their historical peak levels, as builders continue to exercise caution and remember the lessons of the late 2000s economic crunch. This recession, aside from affecting most of the world’s major economies, had been triggered by a nationwide housing crash in the U.S. The so-called “Great Recession” is also considered to be the worst financial crisis in history since the Great Depression of the late 1920s and most of the 1930s.

However, what may be interesting is the discrepancy between what homebuilders say and do; while not necessarily prevarication, there is statistical evidence that shows such a “disconnect.” According to forecasting firm MFR, housing starts were about 60 percent higher in 2006, a year wherein builder sentiment was at a similar level to where it is today. Be that as it may, chief economist Joshua Shapiro believes that there is a “big disconnect between what homebuilders are saying and what they are actually doing.”