American Homebuilder Confidence Makes Surprising Drop in March

A recent report has found that homebuilders have lost confidence in the American housing market in March 2015. The drop has surprised many analysts who see the market on a long-term growth trend.

A recent report has found that homebuilders have lost confidence in the American housing market in March 2015. The drop has surprised many analysts who see the market on a long-term growth trend.

The findings are part of a report put together by the National Association of Home Builders (NAHB). The report, released on Monday, March 16, 2015, indicates that the NAHB/Wells Fargo Housing Market Index dropped to 53 in March, a 2 point reduction from February. Most economists had predicted the index to rise to at least 56 in March, leaving many financial experts scratching their heads. Upon release of the findings, the housing market index fell to its lowest level in nearly a year.

In an effort to explain the unexpected downward trend, NAHB Chief Economist, David Crowe, posited that the drop might be because of supply chain issues and tightening underwriting standards. Nevertheless, he indicated that he and the NAHB believe the drop will be temporary and that the index will once more return to its upward trend later this year.

The NAHB’s positive forecast basis is the sustained period of job growth the US has experienced in recent years. Additionally, the low mortgage rates and the delayed demand satisfaction that millions of American home buyers have been forced to endure since the bursting of the housing bubble in 2008 lead Crowe to believe that the market has not seen an end to home building and sales growth.

The NAHB report also showed that the component gauging current sales conditions fell to 58 in March from 61 in February, while the component measuring buyer traffic dropped to 37 from 39. The gauge charting sales expectations in the next six months held steady at 59, supporting the NAHB’s positive forecast for homebuilder confidence returning in the very near future.

Nevertheless, as noted, the downward trend is probably only temporary. Once supply chain issues resolve and buyers are able to begin fully sating their desire for new products, the industry will likely begin a much more significant climb. This year appears to be an excellent time for that upward trend given the endless list of positive economic indicator reports, which American consumers have received to date, as well as the currently low mortgage interest rates.

Still, this small dip in builder confidence may indicate that this sector of the US economy, so deeply affected by the recession, will be slower to recover than other areas and more subject to jittery upheavals such as this drop in builder confidence. That could make new home building a moderately volatile sector for investors in 2015.