US homebuilder sentiment slips in February

U.S. homebuilders are feeling less confident about their sales prospects ahead of the spring home-selling season, though they remain positive overall that the housing market will continue to improve this year.

The National Association of Home Builders/Wells Fargo builder sentiment index released Tuesday slipped to 58 this month, down three points from a revised reading of 61 in January.

The index had been hovering in the low 60s since June. Readings above 50 indicate more builders view sales conditions as good, rather than poor.

Builders’ view of current sales conditions and a measure of traffic by prospective buyers declined. But their outlook for sales over the next six months edged higher.

The latest readings come as the annual spring buying season ramps up. Typically, the season sets the pattern for residential hiring and construction for much of the rest of the year.

Several factors have builders feeling less optimistic this month, including heightened concerns of late about a slowdown in the global economy and its potential impact on the U.S., and rising costs for labour and ready-to-build land parcels.

Even so, the builders’ trade association continues to forecast modest growth for housing this year.

“Historically low mortgage rates, steady job gains, improved household formations and significant pent-up demand all point to a gradual upward trend for housing in the year ahead,” said David Crowe, the NAHB’s chief economist.

Sales of new homes surged 14.5 per cent last year to 501,000, marking the strongest year for this segment of the housing market since 2007.

Steady job growth that cut the unemployment rate to an eight-year low of 4.9 per cent has given many homebuyers increased confidence, while relatively low mortgage rates improved affordability. Builders have responded to the demand by increasing construction. Over the course of 2015, ground breakings rose 10.8 per cent to 1.1 million.

And yet, construction has yet to rebound fully from the housing bust nearly a decade ago, while sales of new homes continue to run below the 52-year historic average of 655,200. January’s new home sales figures are due out next week.

Whether that progress continues this year will depend largely on the U.S. economy continuing to improve.

That’s come increasingly into doubt in recent weeks as faltering growth in countries like China, the world’s second-largest economy, and financial market turmoil have heightened concerns that the U.S. economy could be in for a stumble.

This month’s builder index was based on 344 respondents.

Builders’ view of current sales conditions for single-family homes fell three points to 65, while their gauge of traffic by prospective buyers fell five points to 39, the lowest level since May last year. Builders’ outlook for sales over the next six months rose one point to 65.

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 NAHB data.