Home builder sentiment dropped more than expected in February and now sits at its lowest level since last May. While economists were expecting the headline index to remain unchanged from January’s initially reported reading of 60, it actually fell three points from an upwardly revised level of 61. This marks the third decline in the last four months, as well as the largest four-month decline since May 2014.
The table to the right breaks down this month’s home builder sentiment report by each of its various components. As shown, Traffic saw the largest decline, falling five points down to 39. Present Sales also saw a moderate decline, while Future Sales was a bright spot with a small gain. In terms of regional sentiment, all four saw declines this month with the West seeing the largest drop. Even after that decline, though, sentiment is higher in this region than in any of the other three. Builders in the Northeast are the most pessimistic while the Midwest and South are right in the middle at a level of 57.
With investors increasingly viewing economic data for signals of a recession or not, we would note that even if sentiment has peaked for this cycle, prior peaks in home builder sentiment often preceded a downturn in the overall business cycle by at least two years.