Builders’ sentiment for February lost 3 points from an upwardly revised January level. The NAHB/Wells Fargo Housing Market Index was 58 in February, still well above the tipping point of 50 and 3 points above last February but down from a recent peak of 65 in October 2015. Builders reported more consumer concern over the price of new homes relative to existing homes as builders face higher costs for labor, land and materials.
The one positive note was the sub index of expectations for future sales rose one point in February from a one-point upwardly revised 64 in January. Builders are expecting the consumer to gain some confidence and return in greater numbers in the future.
Weather did not appear to have a large impact in either direction. While the Northeast and Mid-Atlantic suffered significant snow in January, the regional indicators (to the extent they reflect similar geographies) showed no worse decline than the regions without significantly different weather patterns than the norm.
New home purchases are dominated by existing home sellers with very good credit, significant equity accumulation and strong employment records. The first time buyer is largely missing from the new market and at a lower participation rate than normal in the existing home market as well. One evidence of the shift is larger new homes with more bedrooms and baths than ever before. One downside to this trend is these same well-off new home buyers are also more likely to hold a substantial share of their wealth in equities. The turmoil in the stock market and the general unease concerning international economic trends is most likely to affect the same group of households that are the most active in new home purchases.
Hence, while the HMI decline is modest and the February index is 3 points above last year’s February level, the softness may also be due to general consumer concern about current uncertain economic trends and their loss of wealth in the stock market. If this factor did diminish some consumers’ desire or ability to buy a new home, then the next several months of home buying will be contingent on some stability in international economies and a calmer stock market.
NAHB’s forecast is for a return to more normal, albeit modest, growth in the US as consumers continue to catch up to past patterns, as employment continues to grow and as mortgage rates remain near historic lows. The HMI continues to track new home sales and both have been on an upward trajectory for several years.