Home Builders’ Confidence Wanes Again

By Rex Nutting

RISMEDIA, March 20, 2007-(MarketWatch)-U.S. home builders were less optimistic about the housing market in March, according to a monthly sentiment index released Monday by the National Association of Home Builders.

The NAHB/Wells Fargo housing market index fell to 36 in March from a downwardly revised 39 in February (originally reported at 40). It was the first decline in the index since September, when the index hit a 15-year low of 30. A year ago, the index was at 54; two years ago it was at 70.

Economists surveyed by MarketWatch were looking for a decline to about 38.

The index shows that about one-third of builders have confidence that the housing market is healthy.

Over time, movements in the index have correlated well with the government's housing starts data, which will be released on Tuesday for February. Housing starts are down 36% from the peak.

Economists expect that starts rebounded in February to about 1.46 million seasonally adjusted annualized units from a 10-year low of 1.41 million in January, when starts plunged more than 14% as the weather turned unfavorable in much of the country.

Building permits, meanwhile, are expected to be unchanged at 1.57 million annualized in February.

"Builders are uncertain about the consequences of tightening mortgage lending standards for their home sales down the line, and some are already seeing effects of the subprime shakeout on current sales activity," said David Seiders, chief economist for the industry trade group.

The fundamentals of the market are "still relatively strong," Seiders said in a statement, citing favorable interest rates, solid job and wage growth, and improving affordability due in part to price cuts.

All three components of the NAHB index deteriorated in March. Current sales fell to 37 from 40, expected sales fell to 50 from 53, and buyers' traffic fell to 28 from 29.

The index is constructed by asking builders to rate current and future sales as "good," "fair," or "poor." And they are asked to rate the traffic of prospective buyers through their developments as "high," "average," or "low." A reading of 50 would indicate builders think the market is average or fair. The index has been below 50 for 11 straight months.

Sentiment improved in two of the four regions in March. In the Midwest, the index rose to 28 from 27. In the West, the index rose to 36 from 35. However, sentiment fell to 40 from 44 in the South, and to 41 from 43 in the Northeast.

NAHB has about 235,000 members who build about 80% of the single-family homes built each year.

Rex Nutting is Washington bureau chief of MarketWatch.