Builders remained virtually unchanged in their attitudes toward the housing market as the NAHB/Wells Fargo Housing Market Index fell one point to 45 from a downwardly revised 46 in April. The stall has been in effect since February when the index dropped 10 points.

Builders had passed the tipping point of 50 on the 0 to 100 scale in June 2013. An index value over 50 means more builders see the market improving than see it getting worse. Even with a small deviation in the fall, the index remained above 50 for 8 months. The difficult winter and the fall in customers because of the weather dropped the index where it has remained in the 45 to 46 range for four months.

Of the three components, only the current sales indicator fell from 50 to 48 while expectations for the future increased 1 point to 57 and traffic increased 2 points to 33. Both of these components do bode well for future housing activity.

The realization that the housing recovery remains a modest one has begun to soften builders’ sentiment. As builders finally saw some real movement in buyers’ attitudes their outlook improved as well. Some of that lift was a false start and some was deflated by higher mortgage rates, an uncertain Congress as the October 1 deadline came and went and the mean winter. Builders have readjusted their outlook to correspond to the actual building activity.

Builders did continue to mention problems with labor, land, appraisals, credit access for them and their buyers and building material prices. The supply chain problems remain even with a relative slow return in demand and output at half of the normal market seen in the early 2000s.

Many builders do still remain concerned that an insufficient volume of motivated and qualified buyers will be in the market. Their concern about supplies is two-fold: can they afford to pay the prices and still sell the home at a profit and will the supplies be available when the market turns more positive. While existing home prices have increased, in many markets the new level is still insufficient to pay for construction of a new home. Paying more for labor and lots may be a way to increase an individual’s stock but if the ultimate home price cannot cover these increased costs, the builder cannot proceed. But as prices continue to rise and supplies of homes for sale get even tighter, will buyers still be willing to buy? Hence the stall until buyers show more resilience and the overall economy improves.

Tags: builder sentiment, economics, home building, housing, Housing Market Index