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Confidence Among Homebuilders Falls to Lowest in a Year

MAY 15, 2014 12:07pm ET
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Confidence among homebuilders dropped in May to the lowest level in a year, showing the residential real estate market may be slow to recover after an unusually harsh winter.

The National Association of Home Builders/Wells Fargo builder sentiment gauge fell to 45 this month, the weakest since May 2013, from a revised 46 in April that was lower than initially reported, figures from the Washington-based group showed.

Readings less than 50 mean fewer respondents report good market conditions. The median forecast in a Bloomberg survey called for 49.

Still-tight credit conditions, limited availability of lots and falling affordability as home prices rise are probably preventing the residential real estate market from gaining momentum as temperatures warm. Hiring gains may contribute to a pickup in housing demand and help offset some of the headwinds.

"Builder sentiment is becoming more in line with the market reality of a continuing but modest recovery," NAHB Chairman Kevin Kelly, a homebuilder and developer from Wilmington, Del., said in a statement. "However, builders expressed some optimism that sales will pick up in the coming months."

Estimates in a Bloomberg survey of 46 economists ranged from 46 to 50. The April reading was revised from a prior estimate of 47.

The measure of current single-family home sales declined to 48 in May, the first pessimistic reading in a year, from 50.

The group's gauge of prospective buyer traffic climbed to 33 in May, a four-month high, while the index of the six-month sales outlook increased to 57 from 56 in the prior month.

Builder confidence dropped in the South and in the West, where it fell to its lowest level in a year. Sentiment was unchanged in the Northeast and the Midwest.

Borrowing costs, which climbed in the second half of 2013, are stabilizing. The average 30-year, fixed-rate mortgage was at a six-month low of 4.21% in the week ended May 8, according to data from Freddie Mac. The average from July through December was 4.37%.

While increasing prices are hurting affordability for those getting into the market, they also help homeowners feel wealthier. Real estate data provider Zillow Inc. sees those prices keeping up their climb.

"For almost all of the country, home values are increasing," Chief Executive Officer Spencer Rascoff said on a May 7 earnings call. "The rate of growth is slowing, but it's still a very healthy housing market."

A report tomorrow is projected to show housing starts climbed last month. Builders broke ground at a 980,000 annualized pace in April, a four-month high, from a 946,000 rate the prior month, according to the median forecast of economists surveyed before figures from the Commerce Department. Starts averaged a 929,000 pace last year.

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