Builder Confidence Drops to Historic Low Amid Pandemic Concerns

A major home-building index suffered its worst drop since 1985.

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The latest Housing Market Index from the National Association of Home Builders (NAHB) dropped 42 points from the month before, plummeting from 72 in March to 30 in April. That’s the largest fall in the history of the index, which dates to 1985.

Every month, the NAHB asks home builders to “take the pulse” of the single-family housing market, rating present market conditions and how they believe things will be in six months. The HMI can range from 0-100; any score above 50 is considered “good.”

Before the April report, the NAHB HMI had not seen a score less than 50 since June 2014. April’s was the lowest since June 2012.

Multiple factors likely caused the sudden drop in builder confidence. The coronavirus pandemic upended nearly every aspect of American life in March, leaving many Americans with an unclear view of the future. April’s HMI reflects that uncertainty.

According to data from the U.S. Census Bureau, construction on single-family homes declined nearly 18 percent in March. Over the last two months tens of millions of Americans lost their jobs, and new jobless claims continue to rise.

The construction industry fell into the general chaos caused by COVID-19. Several state governments deemed residential construction a non-essential business, which halted work, delayed projects and forced the heads of companies to layoff and furlough employees.

According to an analysis of government data by the Associated General Contractors of America (AGC), construction employment decreased in 20 states plus Washington D.C. from February to March. This widespread decline came after many consecutive months of growth in the construction job market.

There is some reason for positivity in the industry, however. This economic slowdown is unique because it was caused in part by government stay-at-home orders, imposed in the interest of public health. The “Great Recession” of 2009 was a financial crisis, and in its aftermath the housing market was overbuilt, leaving homebuilders with little work.

Conditions should be slightly different during the upcoming recovery period. In sharp contrast to 2009, a housing deficit exists in the United States, which should lead to plenty of work in the pandemic’s aftermath. As conditions slowly move toward normal, the home-building industry is poised to be a boon for the economy that should help stimulate economic growth.

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