The weaker than expected economic data that we have been seeing from the US continues as sentiment among home builders fell off sharply in February. While weather is a big factor here, it does not paint the entire picture.
The National Association of Home Builders fell off 10 points this month from 56 to 46. This the biggest monthly falloff since the creation of the survey back in 1985. Fifty is the line between expansion and contraction and we have not been below 50 since last May. Of the three components, current sales fell 11 points to 51, buyer traffic fell off nine points coming in at 31 and future sales fell six points to 54.
Stop Blaming the Weather for Everything
While weather conditions across most of the United States led to a decline in buyers, builders are skeptical they can meet ongoing and future demand thanks to a shortage being seen in labor and lots available. Thanks to the shortages in the supply chain for building materials, developed lots as well as workers, builders are starting to worry. The weather kept potential buyers at home and also hurt retail and auto sales. This all contributes to a lack of demand for new homes right now.
Regionally, the three month moving average showed the West was unchanged at 63, the Midwest fell 1 point to 57, the South fell three points to 53 and the Northeast tumbled four points to 38. While it has become popular to blame the weather for the housing market slowdown as arctic temperatures and snowfall, based on these numbers we are seeing, the weather only accounts for 1 to 2 percent of the falloff in sales and housing starts.
This was not the coldest January by far on record. Weather data shows the average daily high in the Midwest was 27 degree in January and only six degrees below the average normal. We were colder in 2009 and the Northeast had far colder seasons in 2003 and 2009. Even though we had weeks of brutally cold weather, we had days which were warm. In New York, the average daily temperature was above normal for 12 days out of the month.
While construction is often hurt by cold weather, we usually see the damage made up in the spring and summer. We are seeing structural concerns with the labor force, as there is a lack of skilled workers and supply chain problems. Those are more concerning than the “blame it on the weather” everyone has been doing. The Federal Reserve will likely be watching the cooling housing market and this will have an impact at its next policy meeting as they meet to decide whether or not to continue reducing the QE program. In all likelihood, the will taper more.