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Homebuilder Confidence Slumped in February on Weather

FEB 18, 2014 11:19am ET
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Confidence among homebuilders plunged in February by the most on record as bad weather limited prospective buyer traffic and depressed sales.

The National Association of Home Builders/Wells Fargo sentiment gauge slumped to 46 this month from 56 in January, figures from the Washington-based group showed today. Readings less than 50 mean more respondents reported poor market conditions than good. The measure was weaker than the most pessimistic projection in a Bloomberg survey of economists.

Snowstorms last week from the South to the Northeast helped reduce homebuyer traffic to its slowest pace since April. Purchases and sales expectations also declined as builder confidence deteriorated from coast to coast, signaling construction will contribute less to economic growth at the start of 2014.

“Significant weather conditions across most of the country led to a decline in buyer traffic last month,” NAHB Chairman Kevin Kelly, a homebuilder and developer from Wilmington, Del., said in a statement. “Builders also have additional concerns about meeting ongoing and future demand due to a shortage of lots and labor.”

The February decrease was the biggest since monthly record-keeping began in 1985. The median forecast in the Bloomberg survey of 46 economists called for a reading of 56, with estimates ranging from 54 to 57.

The group’s measure of the six-month sales outlook decreased to 54 from 60, while the index of current single- family home purchases dropped to 51 from 62 in January. Both of the February readings were the weakest since May.

The gauge of prospective buyer traffic slumped to 31 this month from 40.

Builder confidence declined in all four U.S. regions, led by a 14-point plunge in the West to the lowest level since June. The index dropped nine points in the Midwest to 50, the weakest reading since May. In the South, the measure decreased to a nine-month low of 46, while sentiment among builders in the Northeast fell eight points.

Inclement weather has taken a toll on the economy so far this year. Government offices in Washington closed Feb. 13 as a winter storm that paralyzed the South with snow and ice moved to the Northeast, canceling flights, snarling traffic and downing power lines along the way.

This month’s storm follows the coldest January since 1994 in the contiguous U.S., based on gas-weighted heating-degree days, a measure of energy demand, according to Commodity Weather Group LLC in Bethesda, Md. The Northeast is also on track for the coldest winter since 1982, measured from December to February, the group said.

“The weather also hurt retail and auto sales and this had a contributing effect on demand for new homes,’ David Crowe, the NAHB’s chief economist, said in a statement. “Clearly, constraints on the supply chain for building materials, developed lots and skilled workers are making builders worry.”

Beyond weather, borrowing costs for homebuyers have climbed since mid-2013. The average 30-year, fixed-rate mortgage was 4.28% in the week ended Feb. 13, up from 3.35% in May last year, according to data from Freddie Mac.

At the same time, some builders, such as Atlanta-based Beazer Homes USA Inc., remain upbeat about the outlook for demand.

“While housing isn’t the screaming bargain that it was a year ago, it is still highly affordable in relation to household incomes and to alternative rental payment,” Chief Executive Officer Allan Merrill said on a Jan. 31 earnings call. “Household formations are occurring, and they drive new construction.”

A report tomorrow may show housing starts declined to a 950,000 annualized pace in January from a 999,000 rate a month earlier, according to the median forecast of economists surveyed before figures from the Commerce Department. In November, ground-breaking on new projects reached a six-year high of 1.11 million.

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