The National Association of Home Builders (NAHB)/Wells Fargo Housing Market
Index (HMI) is flirting with the danger zone. Although stressing that the index remains in
positive territory, NAHB said its measure of home builder confidence lost 4
points compared to November, landing at 56.
It was the lowest reading since May 2015 and followed an 8-point drop
last month. NAHB said the index is reflecting
concerns over housing affordability.
“We are hearing from builders that consumer demand exists, but that
customers are hesitating to make a purchase because of rising home costs,” said
NAHB Chairman Randy Noel. “However,
recent declines in mortgage interest rates should help move the market forward
in early 2019.”
Derived from a monthly survey that NAHB has been conducting for 30 years,
the NAHB/Wells Fargo Housing Market Index gauges builder perceptions of current
single-family home sales and sales expectations for the next six months as
“good,” “fair” or “poor.” The survey also asks builders to rate traffic of
prospective buyers as “high to very high,” “average” or “low to very low.”
Scores for each component are then used to calculate a seasonally adjusted
index where any number over 50 indicates that more builders view conditions as
good than poor.
Each of the three HMI component indices posted declines. The index measuring
current sales conditions fell 6 points to 61, the component gauging
expectations in the next six months dropped 4 points to 61, and the metric
charting buyer traffic edged down 2 points to 43.
Regional measurements are expressed as three-month moving averages. They too all retreated. The Midwest dropped 2 points to 55; the West
and South both fell 3 points to 68 and 65, respectively; and the Northeast
registered an 8-point drop to 50.
“The fact that builder confidence dropped significantly in areas of the
country with high home prices shows how the growing housing affordability
crisis is hurting the market,” NAHB Chief Economist Robert Dietz said. “This
housing slowdown is an early indicator of economic softening, and it is
important that builders manage supply-side costs to keep home prices
competitive for buyers at different price points.”