Real Estate

Home builder sentiment falls 2 points in February as Trump euphoria abates

A contractor loads ladders on top of a pickup truck after installing siding at KB Home residential buildings under construction in the Glencroft neighborhood of Cary, North Carolina.
Luke Sharrett | Bloomberg | Getty Images

After a sharp jump following the presidential election, confidence among U.S. homebuilders continued its slide in February. A monthly sentiment survey fell 2 points to a level of 65, according to the National Association of Home Builders. Anything above 50 is considered positive. The survey stood at 58 in February 2016. It hit a recent high of 69 in December.

"While builders remain optimistic, we are seeing the numbers settling back into a normal range," said NAHB Chairman Granger MacDonald, a homebuilder and developer from Kerrville, Texas. "Regulatory burdens remain a major challenge to our industry, and NAHB looks forward to working with the new Congress and administration to help alleviate some of the pressures that are holding small businesses back and making homes less affordable."

All three of the index's components fell, but current buyer traffic led the losses with a sharp 5-point decline to 46. That put it back in negative territory. Current sales conditions fell one point to 71, and sales expectations over the next six months fell three points to 73.

"With much of the decline this month resulting from a decrease in buyer traffic, builders continue to struggle to minimize costs while dealing with supply side challenges such as a lack of developed lots and labor shortages," said NAHB Chief Economist Robert Dietz. "Despite these constraints, the overall housing market fundamentals remain strong, and we expect to see continued growth this year as some of these concerns are addressed."

Housing demand is very strong, but affordability has been weakening. Not only are home prices continuing to climb far faster than incomes and job growth, but mortgage rates are also higher than they were one year ago. Homebuilders are increasing production very slowly, but they are still only building about 70 percent of the homes they would during a historically normal housing cycle. Supplies of existing homes for sale are near record lows, a troubling sign as the usually busy spring housing season approaches. Sales of newly built homes fell 10 percent in December, as both prices and mortgage rates rose sharply.