Economy Watch: Homebuilder Confidence Slips

By Dees Stribling, Contributing Editor

As the U.S. residential market improved throughout 2012, homebuilders grew more optimistic month by month, but now the trend has gone in reverse. According to the National Association of Homebuilders on Monday, its housing market index—which gauges how homebuilders feel about their prospects—dropped two points to 42. Anything under 50 is more pessimistic than optimistic, and the industry came close to 50 recently, but not quite.

As demand for housing goes up, it turns out, so does the cost of building materials, which is vexing builders. They’re also feeling antsy about the supply of developed lots and labor. All of these pressures are driving the overall index down, but even so builders aren’t more pessimistic about everything. The component gauging sales expectations in the next six months posted a three-point gain to 53, which is in frankly optimistic territory, and in fact its highest reading since February 2007.

“Supply chains for building materials, developed lots and skilled workers will take some time to re-establish themselves following the recession, and in the meantime builders are feeling squeezed by higher costs and limited availability issues,” NAHB chief economist David Crowe explained in a press statement. “That said, builders’ outlook for the next six months has improved due to the low inventory of for-sale homes, rock-bottom mortgage rates and rising consumer confidence.”

Home prices spike in Las Vegas, Phoenix, other markets

The latest FNC Residential Price Index, which was released on Monday, is another indicator pointing to a continued rise in housing prices. In February, the index recorded a 28-month high after rising for 12 straight months, with a month-over-month increase of 0.2 percent. For the 12 months through February 2013, the index rose 6.1 percent, its fastest acceleration since July 2006.

The company’s two narrower composite indexes (30 and 10 MSAs) also turned in a small month-over-month price increase, but significant annual increases. The country’s top 30 metro markets and top 10 metro markets were up 7.1 percent and 7.9 percent, respectively, since February 2012. Eighteen of the top 30 markets showed higher prices month-over-month in February, with Phoenix and Las Vegas experiencing the strongest growth (up 1.9 percent for the month).

The annual growth numbers for the top 30 U.S. MSAs showed something fairly remarkable: all of the markets saw higher homes prices, though for those at the bottom of the heap, the increase was scant—0.1 percent for San Antonio and 0.7 percent for Chicago over the last 12 months. At the top end, however, Phoenix and Las Vegas’ growth in home prices since last year was prodigious: 29.3 percent and 14.9 percent, respectively, according to FNC.

Wall Street, gold take a beating

Wall Street experienced its largest drop in months on Monday, with the Dow Jones Industrial Average down 265.86 points, or 1.79 percent. The S&P 500 declined 2.3 percent and the Nasdaq was off 2.38 percent. The indexes were dropping even before word broke of the bombings in Boston.

Gold wasn’t so golden on Monday either, as the price of the metal dropped more than $125 per troy ounce, or about 9 percent, the steepest one-day drop in percentage terms for the metal in about 30 years. Other metals were down, too, as investors headed for the door in search of better returns. Silver lost about 11 percent and platinum and palladium were off as well.

One factor that probably triggered the drop was the decision last week by the Bank of Cyprus to sell its gold holdings, although those are relatively small in the scheme of gold things. More fundamental forces might be at work as well, such as the recent boom in the equities market that’s attracting investors, or the fact that serious inflation—long predicted by goldbugs as a consequence of central bank intervention in post-recessionary economies—have so far failed to materialize.