Builder Confidence Declines in November

“For the past several years, shortages of labor and lots along with rising regulatory costs have led to a slow recovery in single-family construction,” said NAHB Chief Economist Robert Dietz. “While home price growth accommodated increasing construction costs during this period, rising mortgage interest rates in recent months coupled with the cumulative run-up in pricing has caused housing demand to stall.”

MarketWatch suggests the plunge in sentiment may be a harbinger of “something more sinister than a slower pace of building.”

“Home builders were one of the first groups to feel the top of the market cycle just before the Great Recession. In June 2005, NAHB’s index hit 72, its cycle high. It started to tumble the next month, and by mid-2006 stood in contraction territory,” wrote Andrea Riquier at MarketWatch.

NAHB does not go that far in its analysis of the housing market, but Dietz said policymakers should note the more cautious approach builders are taking toward the market.

“Recent policy statements on economic conditions have lacked commentary on housing, even as housing affordability has hit a 10-year low,” said Dietz. “Given that housing leads the economy, policymakers need to focus more on residential market conditions.”

On a three-month moving average basis, regional builder sentiment rose two points in the Northeast to 48, the Midwest fell one point to 57, the South declined two points to 68 and the West dropped three points to 71.