Home Builder Confidence Is Down And Permitting Appears To Reflect It
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Builders pulled residential construction permits at a seasonally adjusted annual
rate of 1,429,000 units in April. This was an 8.9 percent decline from the seasonally
adjusted March rate of 1,569,000 and is down 28.1 percent from the revised April
2006 rate of 1,987,000 according to the monthly report on new residential
construction released last week by the U.S. Census Bureau and the U.S.
Department of Housing and Urban Development. The April figure represents the
slowest pace for permitting since June, 1997.
Housing starts, however, bumped up a bit to a seasonally adjusted
annual rate of 1,528,000, 2.5 percent higher than the revised March figure of
1,491,000. Starts, however, were still 16.1 percent below the 1,821,000 pace
of one year ago.
As is only logical with starts up and permitting down, the number of outstanding
permits under which construction has not yet started dropped from 214,100 units
to 200,900 units from March to April, a decrease of 6.1 percent and 14.7 percent
lower than the 235,600 permits outstanding in April, 2006.
The President of the National Association of Home Builders (NAHB),
California-based builder Brian Catalde remarked on the association's website
that "Builders are adjusting to the adverse impacts of tighter lending
standards on home sales and cancellations by cutting back on the number of new
permits and working down their backlog of unused permits. NAHB's single-family
Housing Market Index has been declining since February and builders are bracing
for the challenges ahead."
NAHB's chief economist David Seiders said, "The pattern of building
permits clearly shows that the dramatic downward correction
in housing production still is underway. Home buyer demand has been sent into
another down leg by the abrupt tightening of mortgage lending standards, and
there is an increasingly heavy supply of vacant housing units on the market.
Under these conditions, builders are cutting back on new construction and intensifying
their efforts to bolster sales and limit cancellations."
The NAHB this week also released the results of its joint Home Builders/Wells
Fargo Housing Market Index (HMI) for May. The HMI measures
builders' perceptions about the housing market both current and short
term. Respondents are asked to evaluate current single family sales and sales
expectations over the next six months as good, fair, or poor and to rate prospective
buyer traffic from very low to very high. Each of the three questions is scored
individually and a composite score is calculated. Any number over 50 indicates
that more builders view sales conditions as good rather than poor.
The HMI had been recovering from very low measures of builder confidence reached
last fall but, the current composite score of 30 matches the lowest level in
its current cycle which was achieved in September. The May figure was three
points lower than the April figure.
All three of the component indexes declined. The index gauging current single-family
sales registered 31, down two points; the index measuring sales expectations
for the next six months fell three points to 41, and the index gauging traffic
of prospective buyers was 23, four points lower than last month.
Economist Seiders stated, "The crisis
in the subprime sector has infected other parts of the mortgage market as
well as consumer psychology, and as a result the housing outlook has deteriorated.
We're now projecting that home sales and housing production will not begin
improving until late this year, and we're expecting the early stages of
the subsequent recovery to be quite sluggish. There still are tremendous uncertainties
regarding our baseline forecast going forward, owing largely to the subprime
crisis that is having widespread effects throughout the mortgage market."
Three out of four regions posted declines in the May HMI. The Northeast was
down 6 points to 32, while the South posted a 4 point decline to 33 and the
West a 3 point decline to 32. The Midwest eked out a 1 point gain, to 23.
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