According to National Association of Home Builders (NAHB) data released on Monday, March 18, 2013, U.S. Builder Confidence declined for the second straight month nationwide from 46 to 44. While this is significantly higher than the index’s recent low-water mark of 8 in January 2009, scores below 50 indicate that the majority of the nation’s home builders have poor expectations for sales activity in the upcoming months. This is consistent with our expectations, as much of the country continues to work through the glut of foreclosed properties resulting from the mortgage crisis.

Regionally, the score for the western United States also declined from 59 to 57, remaining the strongest section of the country for builders’ optimism. The Pacific Northwest has experienced strong building activity recently, partly in response to a favorable (for the builders) scarcity of supply due to “fix-and-rent” investment activity in the distressed property market.

The Housing Market Index (HMI), managed by NAHB in partnership with Wells Fargo, is a benchmark measure of the new-home construction industry’s outlook for home sales in the next 6 months. While other measures of the housing market’s health look specifically at transactional data or economic activity, the HMI measures individual builder’s subjective outlook (through survey feedback) on the health of the housing market. In the chart below, acquired from NAHB, the HMI can be seen alongside actual new-home construction starts. Intuitively, there appears to be a strong correlation between the builder confidence score and the actual construction of new homes.

– Jonathan Kilpatrick