Back to top

Image: Bigstock

Builders Sentiments Slip in March as Coronavirus Fears Rise

Read MoreHide Full Article

Confidence level among single-family builders fell in March, partly reflecting the mounting economic damage from the coronavirus pandemic. Per the National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index (HMI), confidence level among builders dropped by two points to 72 for March from February’s reading of 74.

Although anything above 50 is considered positive, builders are continuously losing confidence in prospects of the U.S. housing market amid rising uncertainties from the coronavirus outbreak despite the start of the busiest housing season.

Key Takeaways

March survey did not fully reflect the effects of the pandemic as half of the builder responses for this month were collected prior to Mar 4 and the outbreak turned into a full swing crisis almost a week later. Confidence is expected to show its full color in the upcoming months.

NAHB chief economist Robert Dietz stated, “Overall, 21% of builders in the survey report some disruption in supply due to virus concerns in other countries such as China. However, the incidence is higher (33%) among builders who responded to the survey after March 6, indicating that this is an emerging issue.”

Precisely, all the three indices registered a plunge in March. A gauge of present sales conditions fell two points to 79 from last month. Traffic of prospective buyers also dropped a point to 56 and sales predictions for the next six months slipped four points to 75.

The three-month moving averages for regional HMI reading were also concerning in all regions other than Northeast. Midwest reported a two-point decline to 66, West fell one point to 82 and South slipped one point to 77 from the prior-month figure. Nevertheless, Northeast rose two points to 64 from a month ago.

Coronavirus Pandemic Poses Threat to Economy

The torrid coronavirus outbreak continues to spread vigorously throughout the world. More than 100 people in United States have succumbed to COVID-19 since the first case that was reported in January. The virus has spread in every American state, the District of Columbia and most U.S. territories. Moreover, President Donald Trump has declared it a national emergency.

This pandemic has also led market pundits to anticipate a U.S. recession by the second quarter of 2020. In the wake of aggravating COVID-19 outbreak, the U.S. Federal Reserve or Fed took the most dramatic step since the 2008 financial crisis and announced that it would cut its target interest rate near zero. This would take the target range for the federal funds rate down from the 1-1.25% range to 0-0.25%. This reflects the urgency with which the Fed views the economic situation after seeing massive market volatility in the past week. Fed chairman Jerome Powell noted that the coronavirus was making a “profound” impact on the economy.

“While the fundamentals for new home sales remain strong — record low existing homes for sales and sturdy underlying demand for housing — the uncertainty and confidence hits from COVID-19 look to temporarily trump the fundamentals,” BMO Capital Markets deputy chief economist Michael Gregory and economist Priscilla Thiagamoorthy wrote in a research note.

The Zacks Building Products - Home Builders industry has now declined 43.3% so far this year along with the Zacks Construction sector and S&P 500 composite’s 35.8% and 25.5% fall, respectively. Although declining mortgage/interest rates environment and stable wage growth are positives for the U.S. housing market, the near-term prospects look grim for the industry as envisioned from the lower sales predictions for the next six months.

Although solid demand for housing and a lack of inventory creates market opportunities for single-family builders, the coronavirus pandemic is a pressing concern. Currently, we are unable to gauge the impact on the housing market that includes biggies like Toll Brothers, Inc. (TOL - Free Report) , KB Home (KBH - Free Report) , Lennar Corporation (LEN - Free Report) , PulteGroup, Inc. (PHM - Free Report) and Meritage Homes Corporation (MTH - Free Report) , as businesses shut down to prevent the spread of the virus.

Still, a few analysts are also of the opinion that solid homebuilding fundamentals for new home sales, record low existing homes sales and sturdy underlying market demand will help the industry sustain despite the uncertainties from COVID-19.

Looking for Stocks with Skyrocketing Upside?

Zacks has just released a Special Report on the booming investment opportunities of legal marijuana.

Ignited by new referendums and legislation, this industry is expected to blast from an already robust $6.7 billion to $20.2 billion in 2021. Early investors stand to make a killing, but you have to be ready to act and know just where to look.

See the pot trades we're targeting>>

Published in