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Weak Prices Drop Builder Confidence for 3rd Straight Month

With the price of a new home barely above year-ago levels, builder confidence fell for the third straight month in April, dropping two points to 42, the lowest level since October, the ""National Association of Home Builders (NAHB)"":http://www.nahb.org/news_details.aspx?sectionID=134&newsID=16244 reported Monday. Economists had expected the Housing Market Index (HMI), the measure of confidence, to improve to 45 from March's reading of 44.


It was the second straight month the index fell when economists had expected it to improve.

The median price of a new single-family home, according to the Census Bureau and HUD, has fallen for three of the last five months and in January dropped $20,500 (7.9 percent), the steepest month-over-month decline since October 2010.

The median price of a new home recovered somewhat in February (the last data report), increasing $7,200, but was just 2.9 percent of the median price in February 2012, the slowest annual change since prices were down 3.2 percent year-over-year from June 2011 to June 2012.

The drop in the overall index was driven by a sharp decline in the gauge of buyer traffic, which fell four points to 30, its lowest level since September. The measure of current sales fell two points to 45, the lowest level since October. The outlook for sales in the next six months improved three points to 53, its highest level since February 2007.

While the overall index for March was unchanged from the original report, the future sales and buyer traffic components were each revised downward by one point.

The buyer traffic measure has fallen six months in the last three months, losing one-sixth of its value in that period.

The drop in the HMI, while surprising economists, has to be a blow to the Nationals Association of Realtors (NAR), which has argued the drop in the inventory of existing single-family homes for sale is due in part to the falloff in construction of new homes.

NAHB Chair Rick Judson explained tight credit conditions--affecting both builders and buyers--contributed to the drop in confidence.


""Many builders are expressing frustration over being unable to respond to the rising demand for new homes due to difficulties in obtaining construction credit, overly restrictive mortgage lending rules and construction costs that are increasing at a faster pace than appraised values,"" Judson said in a statement. ""While sales conditions are generally improving, these challenges are holding back new building and job creation.""

But, despite Judson's comment, the drop in the index comes after the Bureau of Labor Statistics (BLS) reported an 18,000 increase in all construction jobs in March to 5,802,000, the highest level since August 2009. In March, according to the BLS, the number of residential construction jobs improved by 2,300 to 578,100, the highest level since May 2010 and the number of residential specialty contractor jobs increased 12,500 to 1,543,700, the highest level since August 2009.

Tighter inventories of new homes had been expected to improve confidence, but builder attitudes have also been weighed down by prices of new single-family homes.

The last government report on new home sales showed a 4.4 month supply of new homes for sale, an improvement from the 4.2 month supply in January, but still the second weakest reading since July 2005. The report also showed builders completed 574,000 single family homes in February, 163,000 more than they sold.

Builder confidence fell in all four Census led by an eight point drop in the Midwest to 41. Confidence fell four points in the Northeast to 34, three points in the West to 52 and two points in the South to 40.

With the April report, the total index remained below 50--the tipping point between a positive and negative market assessment--for the 84th straight month. The last time the HMI was above 50 was April 2006 when the reading was 51 as the index was falling. NAHB began the index in 1985. It peaked at 78 in December 1998.

The dip in the current sales should be reflected in the government's new homes sales report to be issued on April 23 and the drop in confidence in the report on housing permits and starts out Tuesday.

The index, built based on surveys conducted jointly by the NAHB and Wells Fargo, 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 sales conditions as good than poor.

_Hear Mark Lieberman every Friday on P.O.T.U.S. radio, Sirius-XM 124, at 6:20 am and again at 9:20 am eastern time._

About Author: Mark Lieberman

Mark Lieberman is the former Senior Economist at Fox Business Network. He is now Managing Director and Senior Economist at Economics Analytics Research. He can be heard each Friday on The Morning Briefing on POTUS on Sirius-XM Radio 124.

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