US homebuilder confidence, sales expectations slip in January; outlook still favourable overall

U.S. homebuilders are feeling slightly less confident in their sales prospects ahead of the spring homebuying season, traditionally the peak period for home sales.

The National Association of Home Builders/Wells Fargo builder sentiment index released Tuesday slipped this month to 57, down one point from a revised reading of 58 in December.

Even so, builders’ overall sales outlook remains favourable. Readings above 50 indicate more builders view sales conditions as good rather than poor.

Builders’ outlook for sales over the next six months and a measure of traffic by prospective buyers both declined, while a view of current sales conditions held steady.

The index also found sentiment improved in the West, Northeast and Midwest, but took a step back in the South.

The latest reading is consistent with the NAHB’s forecast that the U.S. housing market will continue to improve at a gradual pace this year.

Sales of new homes grew at a sluggish pace for much of 2014. Just 399,000 new homes were bought in the first 11 months of the year, a 0.2 per cent improvement from the same period in 2013. That’s still far off from the annual rate of 700,000 seen during the 1990s.

Rising prices and essentially flat incomes have cut into affordability for many would-be buyers, particularly first-time buyers.

Still, broader economic trends remain favourable for builders.

The unemployment rate has fallen to 5.6 per cent, down from 6.7 per cent 12 months ago. And mortgage interest rates remain near historic lows, making it less expensive to buy a home.

Average long-term U.S. mortgage rates fell last week for the third straight week, with the benchmark 30-year rate declining to 3.66 per cent, its lowest level since May 2013.

In addition, new guidelines that affect government-backed home loans could make it less costly for first-time buyers to come up with a down payment or afford private mortgage insurance.

In the latest NAHB index, which was based on responses from 396 builders, the index gauging current sales conditions for single-family homes held at 62. Builders’ outlook for sales over the next six months fell four points to 60, while a measure of traffic by prospective buyers slipped two points to 44.

Though new homes represent only a fraction of the housing market, they have an outsize impact on the economy. Each home built creates an average of three jobs for a year and generates about $90,000 in tax revenue, according to NAHB data.