Home Builders Remain Cautious About Housing Market

WASHINGTON—U.S. home builders remained cautious about the housing market in March, suggesting a driver of the recovery might be sputtering for reasons beyond the severe winter weather.

Builder confidence in the market for single-family homes rose just one point from a month earlier to a seasonally adjusted 47 in March, the National Association of Home Builders said Monday. Readings below 50 indicate more builders view conditions as poor than good.

The increase, which was smaller than expected, comes after a drop of 10 points in February, the biggest one-month decline on record. Builders reported they were slowed by poor weather, but also said they were also hampered by difficulties finding labor and land.

“The soft readings in the past two months might be dismissed because of the challenging weather, but detail of the report suggests some fundamental softening,” said Michael Moran, chief economist at Daiwa Capital Markets America.

Interest rates remain elevated from a year ago, making houses less affordable for borrowers. A 30-year fixed-rate mortgage averaged 4.37% last week, three-quarters of a percentage point above the mid-March level last year, according to Freddie Mac. Still, rates so far this year have remained below the recent 4.57% peak reached in September.

Monday’s report showed sales and traffic increased slightly in March, but sales expectations over the next six months declined.

“A number of factors are raising builder concerns over meeting demand for the spring buying season,” said NAHB Chief Economist David Crowe. “These include a shortage of buildable lots and skilled workers, rising materials prices and an extremely low inventory of new homes for sale.”

Residential investment, which includes home building, had contributed to the nation’s economic growth for 12 straight quarters until the final three months of 2013, when it became a drag on gross domestic product.

The survey showed the housing sector isn’t bouncing back as strongly from the winter chill as other pieces of the economy. In February, U.S. employers added the most jobs since November. Retail sales increased last month after declining the previous two, and factory output rose sharply.

A warmer spring could aid home builders. Unseasonably cold weather can delay construction of houses and discourage would-be buyers from shopping. Regionally, builder confidence was highest in the West and weakest in the Northeast. The western U.S. has generally dodged the icy winter that hammered much of the rest of the country.

The industry faced substantial volatility last year, losing momentum in the summer when interest rates started to rise but regaining its footing in the fall.

The Federal Reserve this week will evaluate whether to again ratchet down its bond-buying program after cutting the pace of purchases twice since December to $65 billion a month. The stimulus program is intended to keep long-term interest rates low to spur stronger hiring and investment.

Central-bank officials will also update their forecasts for when the Fed will raise its benchmark interest rate from near zero. Changes to the federal funds rate influence rates on mortgages and other types of loans.

Write to Eric Morath at eric.morath@wsj.com

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