U.S. home-builder confidence buckles under pressure of high labor costs

By Siri Bulusu

Confidence among U.S. home-builders reached a nine-month low in February, said a U.S. trade group Tuesday, after a series of lukewarm index figures fell shy of expectations in recent months.

The report stated the Housing Market Index, compiled by the National Association of Home Builders and Wells Fargo, dropped 3 points to 58 in February from a revised 61 in January. The reading fell well short of the consensus estimate of 61 by analysts surveyed by Bloomberg.

“Builders are reflecting consumers’ concerns about recent negative economic trends,” said David Crowe, chief economist for the NAHB.

NAHB chairman Ed Brady stated in a press release that the dip in confidence can be attributed to high costs and low availability of construction labor.

Brady said that despite the dip in confidence this month, builders are still “optimistic” that home sales will grow in coming months.

J.P. Morgan analyst Daniel Silver agreed, writing, “We still believe that the housing market will continue to recover over time, although the tone of the near-term housing indicators has been mixed in recent months.”

Housing Market Index (Feb.15-Feb.16)

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The Housing Market Index began to slow in December 2015, due in part to the tightening construction-labor market. (Siri Bulusu/ MEDILL)(Source: Bloomberg)

The HMI number peaked in November 2015 at 65 and then fell short of consensus expectations in the following December and January, reaching 62 and 60 respectively, hinting at a lukewarm outlook for the housing market in 2016.

“The latest figure was not much weaker than the readings from the past few months and still a solid level in a broader historical context,” Silver stated.

Index readings over 50 suggest most builders feel confident about market conditions for single-family homes.

Analysts at Trading Economics estimate the HMI will fall to 57.32 in March 2016 and hold around 57 through April and May.

Nearly four years after the housing crisis, the housing market began to see sustained growth in 2012, aided by historically low mortgage rates and decreased foreclosures.

The HMI steadily increased since the extremely low reading of 25 in January 2012, and continued to rise until the index peaked in November 2015 at 65.

The U.S. Housing Market Index fell under pressure from high labor costs for construction workers. (Scott Lewis/ FLICKR)