Home builder sentiment drops 2 points in May

In the heart of the spring housing market, home builders are less optimistic.

Builder confidence slipped two points in May on a monthly survey from the National Association of Home Builders (NAHB). It now stands at 54. Fifty is the line between positive and negative sentiment.

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A contractor works on a townhouse under construction at the Pulte Homes Inc. Pepper Lane development in San Jose, California.
David Paul Morris | Bloomberg | Getty Images
A contractor works on a townhouse under construction at the Pulte Homes Inc. Pepper Lane development in San Jose, California.

"Consumers are exhibiting caution, and want to be on more stable financial footing before purchasing a home," said NAHB Chief Economist David Crowe. "On the bright side, the HMI component measuring future sales expectations has been tracking upward all year, mortgage rates remain low, and house prices are affordable. These factors should spur the release of pent-up demand moving forward."

Perhaps they should, but they haven't so far, as potential home buyers are still facing tight credit conditions and home prices are rising faster than income and employment growth. Sales of newly built homes in March, which represent signed contracts not closings, fell just over 11 percent month-to-month, according to the U.S. Census. Mortgage applications to purchase a home were flat in April, according to the Mortgage Bankers Association, suggesting April new home sales might be lower. The average loan size for a newly built home soared to a record $315,670, as builders continue to focus on higher end buyers, not entry level consumers.

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Builders are less confident overall, but their sentiment was strangely mixed, again indicative of the still floundering recovery. Of the NAHB index's three components, sales expectations in the next six months rose one point to 64, buyer traffic dropped one point to 39, and current sales conditions fell two points to 59.

Regionally, on a three-month moving average, builder confidence in the South and Midwest each rose one point to 57 and 55, respectively. In the Northeast, it fell by one point to 41, and in the West it dropped three points to 55.

CORRECTION: This story has been updated to reflect that builder confidence slipped two points in May to 54.