Homebuilder Confidence Takes a Perilous Plunge
Business + Economy

Homebuilder Confidence Takes a Perilous Plunge

REUTERS/Mike Blake

Homebuilder confidence in the U.S. suffered its largest one-month drop ever in February, heightening concerns that recent signs of weakness in the economy reflect deeper problems than the severe weather that has gripped much of the country.

The National Association of Home Builders said on Tuesday its Housing Market Index plunged by 10 points to 46 in February, with a majority of builders seeing market conditions as poor. The NAHB, which produces the index together with U.S. bank Wells Fargo, said cold temperatures kept potential home buyers out of the market across much of the country.

Related:  Cold Weather Strikes a Blow at Manufacturing

But the trade group said high costs were also holding back the housing industry, and the data adds to worries the U.S. economy might actually be losing momentum following a year of break-out growth.

Poor weather usually drags on growth only temporarily as businesses and consumers put off purchases. If the recent slowdown in the economy is weather related, economists expect that the trend will reverse once temperatures turn higher and spur consumers to get back to spending.

"This report will keep alive concerns in the markets that the weakening in the data recently is not just due to weather," said Jim O'Sullivan, an economist at High Frequency Economics in Valhalla, New York.

Worries over the outlook for the economy have grown since reports showed weak hiring across the economy in December and January, when much of the country experienced unusually frigid temperatures. Now signs of economic weakness are persisting into February.

Another report on Tuesday showed a gauge of manufacturing in New York state slowed in February. The New York Federal Reserve Bank's Empire State general business conditions index fell to 4.48 from 12.51 the month before, which was a 20-month high. Economists polled by Reuters had expected a reading of 9.0. The survey of manufacturing plants in New York state is one of the earliest monthly guideposts to U.S. factory conditions.

Investors were caught off guard by the NAHB report, which marked the first time since May that the reading was below the key 50 mark. Readings below 50 mean more builders view market conditions as poor than favorable.

The Dow Jones index of housing stocks .DJUSHB fell 0.7 percent following the release of the data. All three of the home builders in the S&P 500 index - Lennar Corp. (LEN.N), PulteGroup Inc. (PHM.N) and D.R. Horton Inc. (DHI.N) - were more than 1 percent lower. More broadly, prices for U.S. stocks and yields on government debt were little changed.

The U.S. housing market has been cooling over much of the last year as the Federal Reserve prepared to wind down its bond-buying stimulus program. Expectations the program would come to an end have pushed borrowing costs higher. Builders also are concerned that the industry can't keep up with demand. While this points to some underlying health in the sector, it also is a factor limiting the supply of homes, which helps push up prices and could put home out of reach for some buyers.

"Clearly, constraints on the supply chain for building materials, developed lots and skilled workers are making builders worry," the NAHB's chief economist, David Crowe, said in the statement from the group. "The weather also hurt retail and auto sales and this had a contributing effect on demand for new homes."

With additional reporting by Dan Burns and Daniel Bases in New York, both of Reuters.