U.S. homebuilders’ confidence in the housing market declined sharply this month as the severe weather battering much of the nation keeps many would-be buyers at home.
Storms and cold weather dampened builders’ outlook for sales ahead of the spring home-selling season and could further slow the pace of home construction.
The National Association of Home Builders/Wells Fargo builder sentiment index released Tuesday slid to 46. That’s down from January’s reading of 56 and is the lowest level since May.
Readings below 50 indicate that more builders view sales conditions as poor rather than good.
Builders’ view of current sales conditions for single-family homes, their outlook for sales over the next six months and traffic by prospective buyers have all declined since January.
The overall index had been above 50 since June, reflecting a strengthening housing market. The latest reading complicates the outlook for sales just as the annual spring buying season ramps up. Typically, the spring season sets the pattern for residential hiring and construction in the ensuing months.
Sales of new homes jumped 16.4 per cent last year to 428,000, the highest level in five years. Sales typically slow in November and December. But this winter’s onslaught of snowfall and freezing temperatures has exacerbated the seasonal slowdown. Economists predict that sales of new homes fell for the third month in a row in January.
The builder survey adds to reports showing that severe weather this winter has taken a toll on the economy. Auto sales fell 2.1 per cent in January and posted their first year-over-year drop in sales since August 2010. Retail sales also tumbled last month after a smaller decline in December.
“The weather also hurt retail and auto sales, and this had a contributing effect on demand for new homes,” said David Crowe, the NAHB’s chief economist.
Builders also continue to grapple with a shortage of skilled workers and ready-to-build land and delays in obtaining building materials, Crowe noted.
Those factors and the weather dimmed the outlook for some of the respondents polled in the latest NAHB survey, which included responses from 321 builders.
A measure of current sales conditions for single-family homes dropped 11 points to 51. Builders’ outlook for single-family home sales over the next six months fell 6 points to 54. And a gauge of traffic by prospective buyers slid nine points from last month to 40.
Even so, most economists expect U.S. home sales and prices to keep rising this year.
The housing market has been recovering steadily over the past two years, helping boost economic growth and hiring. Home construction slowed in December but ended 2013 with the best showing since the housing bubble burst.
Though new homes represent only a fraction of the housing market, they have an outsize impact on the economy. Each home built creates an average of three jobs for a year and generates about $90,000 in tax revenue, according to data from the homebuilders association.