Real Estate

Homebuilder confidence falls to 62 in November

Homebuilder sentiment posts first drop in six months
Homebuilder sentiment posts first drop in six months

Sentiment among U.S. homebuilders fell more than expected in November, according to a monthly industry index, with scarcity of land and labor continuing to stymie growth. Builder confidence fell three points to 62 on the National Association of Home Builders/Wells Fargo Market Index. Anything above 50 is considered positive sentiment. October's reading was revised up by one point.

"The November report is pullback from an unusually high October, and is more in line with the consistent, modest growth that we have seen throughout the year," said NAHB Chief Economist David Crowe. "A firming economy, continued job creation and affordable mortgage rates should keep housing on an upward trajectory as we approach 2016."

Construction workers building a new home in Miami, Florida.
Joe Raedle | Getty Images

Builder confidence on this index has been in the sixties for six straight months; it stood at 58 in November of 2014. Of the index's three components, sales expectations over the next six months dropped the most, down five points to 70. Current sales conditions fell three points to 67, but the component measuring buyer traffic increased one point to 48, the only one still in negative territory.

Sentiment has tracked significantly higher than actual home construction during this unique housing recovery. Usually the two move in sync, but housing starts, while improving, are still well below historical demand levels. This as the supply of existing homes for sale nationwide is very low. Homeowners appear to be more inclined to remodel than to move up.

That has benefited home improvement retailer Home Depot, which posted better-than-expected quarterly earnings Tuesday. Consumers are choosing home improvement products over apparel, according to analysts.

"Home improvement has performed better than other areas of retail. Those companies probably are hit harder by weather than Home Depot," Brian Nagel, a senior analyst with Oppenheimer & Co., said on CNBC's Squawk Box Tuesday, adding that the company is "a bright spot" in overall retail.

The end unit is a foreclosed, vacant home in Washington, DC's Petworth neighborhood.  RealtyTrac estimates its value at $600,117.
Why did foreclosures spike in October?

Home Depot saw strong demand from specialty contractors and builders, as well as homeowners. This coincides with continued strong growth in home remodeling.

Mortgage rates, while still historically low, began rising again recently, as the prospects for an interest rate hike by the Federal Reserve in December increased. The average contract interest rate on the popular thirty-year fixed mortgage is now at or just above 4 percent. Homebuilders continue to raise prices, as rising costs of land and labor make price cuts too difficult.

On a three month moving average, sentiment in the West increased four points to 73, the highest reading by far of all regions. Builder sentiment did finally break out of negative territory in the Northeast, rising three points to 50. Warmer-than-usual temperatures may be playing into that. Sentiment remained flat in the Midwest and South at 60 and 65 respectively.