REAL ESTATE NEWS

ECONOMIC REPORT 

May 15, 2014, 10:34 a.m. EDT

Home builders most pessimistic in a year (which translates to better 'resale' values) 

WASHINGTON (MarketWatch) — Home builders are the most pessimistic they’ve been in a year, with makers of new single-family homes reporting fewer sales.

The housing-market index for builder confidence declined to 45 this month — the lowest reading since May 2013 — from 46 in April, the National Association of Home Builders/Wells Fargo reported on Thursday. Economists polled by MarketWatch had expected a May reading of 48, compared with an originally reported level of 47 in April.

“It is clear that builder sentiment is becoming more in line with the market reality of a continuing but modest recovery,” Kevin Kelly, NAHB’s chairman and a builder from Wilmington, Del., said in a statement.

The index has been below 50 since February, indicating that builders, generally, are pessimistic about sales trends. Report details show that a gauge of builders’ views on present sales of single-family homes fell to 48 in May from 50 in April.

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Dropping affordability has curbed buyer demand. During the most recent earnings season, many builders reported that they were able to crank up prices, but also recorded annual drops in order volume.

Even though employers are picking up hiring, many workers remain wary about their economic prospects, and aren’t ready to buy a home.

“Builders are waiting for consumers to feel more secure about their financial situation,” David Crowe, NAHB’s chief economist, said in a statement. “Once job growth becomes more consistent, consumers will return to the market in larger numbers and that will boost builder confidence.”

Builders have slowed down the pace of new construction in recent months, grappling with an unusually tough winter. The most recent monthly report on new-home construction showed that the pace of housing starts was below year-earlier levels, posting the widest annual contraction in about three years.

Friday morning the government will release a fresh report on new home construction, and economists expect that the annual starts rate rose to 980,000 in April from 946,000 in March. That would be a welcome increase, but the pace would be still far below the 1.7 million starts per year economists estimate are needed to keep up with population growth and meet demand for replacement and second homes.

With plenty of room for home construction to grow, builders’ views on the market’s prospects rose this month. According to Thursday’s report, a barometer of builders’ views on upcoming sales of single-family homes rose one point in May to 57, while a gauge of prospective-buyer traffic rose two points to 33.