The index from the US National Association of Home Builders posted its largest monthly decline ever in April as coronavirus disrupts construction activity, locally and internationally.
The coronavirus-effect has been likened to the great recession. The recovery is unknown as many economies around the world are grappling with recovery of various prior recession-effects. Image credit: Marketwatch
The numbers: The tone among home builders has quickly turned negative as the coronavirus outbreak planes its way through the US housing market.
The National Association of Home Builders’ (NAHB) monthly confidence index fell a staggering 42 points to a reading of 30 in April from 72 the month prior, the trade group said. April’s figure represents the lowest index reading since June 2012.
“I liken it to the initial reaction of the stock market,” Jerry Howard, Chief Executive Officer of the National Association of Home Builders, said. “When all this hit, it plummeted. I think it took the housing index a little bit longer to react like that.”
“Our industry just lived through a U-shaped recovery coming out of the Great Recession,” Howard said. “What we’ve learned is that it ends up leading to housing affordability problems because it’s more difficult to build in a U-shaped recovery.”
The decline represents the largest monthly change in the index’s 30-year history. The monthly index is based on a monthly survey in which the NAHB asks builders to rate various measures regarding the real-estate market as “good,” “fair,” or “poor.”
Index readings above 50 indicate improving confidence, while a figure below that threshold would signal the opposite. This is the first time since 2014 that the index has dropped below 50.
Before the coronavirus outbreak reached the United States, home builders were in a strong position. After years of slow home construction activity, Americans’ appetite for new homes had grown considerably. That’s because low-interest rates made home buying more affordable for many Americans, while a dearth of existing homes for sale left them with few options.
Builders for the time being are still building. The Department of Homeland Security has designated single- and multi-family housing construction as an essential business — and in many states building activity has continued amid stay-at-home orders. Howard argued that construction sites are able to ensure workers’ safety and adhere to social distancing guidelines.
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