Index of builder confidence drops slightly in February

Builder confidence in the market for newly built, single-family homes was virtually unchanged in February with a one-point decline to 46 on the National Association of Home Builders’ Housing Market Index released Tuesday.

Three-month moving averages for each region’s Housing Market Index score were mixed in February, with the Northeast up three points to 39, the West up four points to 55, and the Midwest and South each down two points to 48 and 47, respectively.

“I think most builders were encouraged by the turnaround in 2012, but every builder I’ve spoken to has realistic expectations,” said Dennis Smith, president of Las Vegas-based Home Builders Research. “Yeah, things have turned around, but they have a long way to go to reflect a normal market atmosphere. As long as you have double-digit unemployment, you’re not going to have a stable housing market.”

Las Vegas builders recorded 5,544 new-home sales in 2012, a 42 percent increase from the previous year, but far from the peak of nearly 39,000 sales in 2005, Smith noted. Building permits, an indicator of new housing starts, increased 58 percent to 5,908.

Holding above the critical midpoint of 50 for a third consecutive month, the Housing Market Index component gauging current sales conditions fell by a single point to 51 in February. Meanwhile, the component gauging sales expectations in the next six months rose by one point to 50, and the component gauging traffic of prospective buyers slipped four points to 32.

Homebuilders realize the improvement in last year’s sales was based on “artificially created” demand, housing analyst Smith said.

The lack of inventory that came almost overnight as a result of Nevada’s robo-signing law pushed buyers into new homes, he said.

Following solid gains over the past year, builder confidence has essentially leveled out and held in the same three-point range over the past four months.

“This is partly due to ongoing uncertainties about job growth and consumer access to mortgage credit, but it’s also a reflection of the fact that builders are now confronting rising costs for building materials and, in some markets, limited availability of labor and lots as demand for new homes strengthens,” NAHB Chairman Rick Judson said in a statement.

Derived from a monthly survey that NAHB has been conducting for 25 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 from 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.

The index rose strongly in 2012, then paused slightly in the new year as builders adjusted their expectations to reflect the pace at which consumers are moving forward on new-home purchases, NAHB chief economist David Crowe observed.

Contact reporter Hubble Smith at or 702-383-0491.