Economy Watch: Homebuilder Confidence Sees Downtick

By Dees Stribling, Contributing Editor

For the homebuilding industry, the last year or so has been one of increasing optimism, buoyed by increasing sales. The industry is still a lot more optimistic than it was this time last year, or certainly two or three years ago, but the National Association of Home Builders has nevertheless reported a downward blip in homebuilding confidence in January.

According to the NAHB on Tuesday, its housing market index dropped one point from January to 46 in February. The component gauging current sales conditions fell by a single point to 51, while the component measuring sales expectations in the next six months rose by one point, to 50. The traffic-of-prospective-buyers component, which is considerably weaker than the other two, became even weaker by slipping four points, to 32.

“Having risen strongly in 2012, the [index] hit a slight pause in the beginning of this year as builders adjusted their expectations to reflect the pace at which consumers are moving forward on new-home purchases,” NAHB chief economist David Crowe observed in a press statement. “The index remains near its highest level since May 2006, and we expect home building to continue on a modest rising trajectory this year.”

Remodeling activity down as well

Residential remodeling also experienced a downtick in December, says BuildFax, which collects and analyzes construction records nationwide. The company reported on Tuesday that residential remodels authorized by building permits in December were at an annualized rate of 2.725 million, which is 6 percent below the revised November rate of 2.895 million and 6 percent below the December 2011 rate.

The decrease came despite the remodeling spike in December in the Northeast, which saw 39 percent more permit work than in November, and 37 percent more than a year earlier, because of the aftermath of Hurricane Sandy. By contrast, all other regions of the country saw drops in remodeling activity, even though the general trend for remodeling has been mostly up in recent quarters as homeowners feel more secure in their jobs and that their property values aren’t going to fall through the floor again.

“The last time the Northeast broke 600,000 estimated residential remodels was five years ago,” noted Joe Emison, chief technology officer at BuildFax, in a press statement. “Unfortunately, the rest of the country saw both month-over-month and year-over-year declines in residential remodeling activity.”

Sequester dead ahead

President Obama took to the presidency’s bully pulpit on Tuesday to cajole Congress into acting on the upcoming sequester, raising the prospect of damage to military readiness and domestic programs, not to mention slower economic growth. Congress will return from recess on Feb. 25, which is just in time to prevent the $85 billion sequester, with its unpredictable impact on the economy, from beginning.

Or not. Currently there’s little evidence that any kind of compromise will be reached within Congress, with Republicans averse to voting for Buffett-rule tax increases and Democrats averse to cutting entitlement spending to shore up defense outlays. By design, the sequester doesn’t apply to the benefits of either the Social Security or the Medicaid, and cuts in Medicare benefits are capped at 2 percent of the baseline level.

Back after Presidents Day, Wall Street had a positive day on Tuesday. The Dow Jones Industrial Average was up 53.91 points, or 0.39 percent, while the S&P 500 gained 0.73 percent and the Nasdaq advanced 0.68 percent.