Slumping Home Builder Confidence Dampens Stocks



According to a new report by the National Association of Home Builders (NAHB), higher home prices caused many U.S. homebuilders to take heed. Homebuyers, faced with higher interest rates and prices, are postponing their home ownership dreams, at least until the better climate dawns.

home construction
Home starts are slowing down nationwide

Builder confidence has wained in recent months, and especially in areas of the county where high home prices make affordability a bigger issue. This situation is further illustrated by the fact the Housing Market Index (HMI) dropped to 56 from a score of 60 since November. The builder conference index still remains positive, but experts wonder for how long.

The NAHB HMI survey gleans data on builder perceptions of current and future single-family home sales, as well as buyer foot traffic as “good,” “fair” or “poor.” The iterate scores are plugged into a formula to gauge builder sentiment. The HMI is also a good predictor on new-home construction and sales, and the November freefall was followed by a new-home sales report that was the lowest in nearly 3 years.

Looking at the HMI numbers up close, the three-month moving averages for regional HMI scores showed the Midwest dropping two points to 55; the West and South falling by three points to 68 and 65, respectively; and the Northeast nosedived to 50 from 58. This past summer’s construction boom has turned into a reversal of fortune.

The fact that the demand for lower-priced entry-level homes is not being met, and the ongoing short supply, leaves us with a prognosis that competition and prices will remain high throughout 2019. This news has caused share prices for large publicly-traded builders to sag dramatically, which can only exacerbate the situation.

Major stocks that fell on the news include M.D.C. Holdings, Inc. is down to $28.11 from a high this year of $34.69; Meritage Homes Corporation took a hit falling from $54.15 to $36.72; and even though D. R. Horton, Inc. is in the green today, the construction firm’s stock has dropped from a high this past year of $52.86 to $34.66 at Monday’s close.