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Builder Confidence Pauses in September
David Crowe / NAHB / September 19, 2013
The September NAHB/Wells Fargo Housing Market Index held steady at 58, the same level as the one-point downwardly revised August reading. The underlying components of the HMI were mixed. Future expectations declined to 65 from 68 in August and traffic rose one point to 47 from an upwardly revised 46.
Housing starts have not improved as fast as the index in the past year, but that same disconnect occurred in 1991 when home builders’ sentiment doubled in four months while single-family starts rose by one-third. Currently, the HMI is about 50% greater than it was last year, while single-family starts are only 15% ahead of one year prior. Eventually, starts do catch up with builders’ sentiment if history is any indication.
The pause in sentiment in September is the result of continued headwinds of labor and lot availability, as well as credit and building material prices. For example, the count of unfilled construction sector jobs has equaled or exceeded 100,000 for six of the last seven months. Additionally, an NAHB survey found that 59% of builders reported that the supply of lots in their markets was low or very low, up from 43% in 2012. And after a slight pause in building material price increases, gypsum may see a rise in 2014.
Recent increases in mortgage interest rates add to the uncertainty for buyers and builders. The Conference Board, in its reporting of consumer confidence, noted that the share of individuals expecting higher interest rates over the next 12 months increased 5.4 points in August to 66.2%, as measured on a three-month moving average basis. This is the highest share since September 2006.
Nonetheless, housing construction continues to expand. As reported by the Census and HUD, housing starts rose 0.9% in August pushed by a solid 7% increase in single-family starts and tempered by an 11% fall in multifamily starts. The single-family increase was broad; all four Census regions showed increases ranging from 17.5% in the West to 2.3% in the South. This geographic spread matches the last edition of the NAHB/First American Improving Markets Index, which topped out at a count of 291 improving metro areas for September.