The market will continue to decline for the homebuilders, especially those building mainly in the bubble markets.
The two monthly reports that measure the health of the home construction industry were released this week. The U.S. Census Bureau and U.S. Department of Housing and Urban Development issued its report on housing starts in June and the National Association of Home Builders in conjunction with Wells Fargo published their monthly Housing Market Index (HMI) for July. Taken together the two reports are a good indication that the real estate market is definitely slowing and that builders are not optimistic that things will get better soon.
The HMI is derived from a monthly survey in which builders are asked their perceptions for current single-family home sales and their expectations for sales over the next six months as either "good," "fair," or "poor" and asks them to rate current buyer traffic from very low to very high. Any total score over 50 indicates that more builders view conditions as good rather than poor.
In June 2005 the HMI was at a recent high of 72. By May of this year it had slipped to 42 and this month it is down three more points to 39. All three of the survey components slipped but most notable was the decline in the index for sales expectations over the next six months which fell five points to 46. The index gauging current sales was down four points to 43 and the index gauging traffic of prospective buyers dropped from 29 to 27.
Builders in the Western region recorded the biggest dip in confidence, a decline of 9 points to 51. That region had kept a high level of confidence for some time and, even with the recent drop its builders were still more optimistic than those in the Northeast (36), the Midwest (21) and the South (50). The South was actually up two points since June.
The National Association of Home Builders Chief Economist David Seiders said that builders were concerned about the eroding affordability of home ownership and the withdrawal of investors and speculators from the marketplace. But he also said that builders fear more tightening of monetary policy by the Federal Reserve that could drive up interest rates even further.
"In terms of historical comparison, the HMI's movement is essentially in line with readings from the 1994-95 period when the Federal Reserve tightened monetary policy and a fairly orderly cooling-down process occurred in the nation's housing markets," Seiders observed. "That is what our forecasts anticipate happening in the current period, provided the downside risks of rising interest rates and a bail-out by investors/speculators do not become too pronounced.
Friday, July 21, 2006
Housing Market Index Falls To 1994-95 Levels
The Housing Market Index is low. It is now in line with reading from the 1994-95 period. New from Mortgage News Daily:
Posted by David at 7:37 PM