The building sentiment among construction firms and builders has declined for the third straight month after rising steadily until January. Builder confidence for newly built single family homes recorded a sharp two points decline falling to 44 on the National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index (HMI), which was released on March 18, 2013.
The HMI is a sample based on perceptions of 300 or more builders, which operates as a gauge for determining current housing trends and predicting demand. The HMI is derived by NAHB from a monthly survey that it has been conducting since the past 25 years.
According to the survey, current sales conditions declined four points to fall to 47. Apparently, any HMI number less than 50 indicates that more number of builders think that sales are poor, explains CalculatedRISK.com.
Confidence among builders is poor because of low inventory supply and the rising cost of construction material. The builders have also been facing troubles availing credit and appraisal approvals, which are holding them back from finalizing and completing deals, reports CNBC.
"Although many of our members are reporting increased demand for new homes in their markets, their enthusiasm is being tempered by frustrating bottlenecks in the supply chain for developed lots along with rising costs for building materials and labor. At the same time, problems with appraisals and credit availability remain considerable obstacles to completing deals," Rick Judson, Chairman of NAHB, said in a statement.
Experts at NAHB believe that a lot of issues are to be addressed to boost builder confidence in the coming months.
"In addition to tight credit and below-price appraisals, home building is beginning to suffer growth pains as the infrastructure that supports it tries to re-establish itself. During the Great Recession, the industry lost home building firms, building material production capacity, workers who retreated to other sectors and the pipeline of developed lots," David Crowe, Chief Economist at NAHB said in the statement. "The road to a housing recovery will be a bumpy one until these issues are addressed, but in the meantime, builders are much more optimistic today than they were at this time last year."
According to MarketWatch, the last time the readings rose over 50 was in 2006. Though the readings have been increasing for the past eight years, they have started declining now.
However, future sales estimates gained one point to rise to 51 and the estimated traffic of prospective buyers gained three points to go up to 35 in March.
Despite the drop in March, builders' confidence is up 57 percent from that of a year earlier. Analysts are also hoping for a positive report from the government on existing home sales and new home construction for the month, reports MarketWatch.