Two measures of the housing market were released this week
and each shows that, at best, builders are remaining cautious; at worst they
are showing a bit of despair.
The National Association of Home Builders (NAHB)/Wells Fargo Housing Market
Index (HMI) for June reported that builders' confidence in the market reached
the lowest point in over 25 years.
The HMI measures builders' reading of the single family real estate market
in three areas: their perceptions of current sales and their expectations for
the next six months on a scale ranging from poor to good and their feelings
about current buyer traffic on a six point axis from very low to very high.
Any score above 50 on each of the three points indicates that builders are more
confident in the market than not. A combined index of the three indices is also
constructed, again with any score above 50 considered positive.
All three components and the aggregate declined in June. The index measuring
current sales lost two points from May's score, totaling 29. The index
of perceptions for the next six months also fell two points to 39 and the index
gauging current buyer traffic was down one point to 21. It was the total HMI,
however, that revealed the lack of confidence builders are currently feeling.
At 28 it was the lowest score since February 1991.
NAHB President Brian Catalde said "Builders continue to report serious impacts
of tighter lending standards on current home sales as well
as cancellations, and they continue to trim prices and offer a variety of non-price
incentives to work down sizeable inventory positions."
According to NAHB Chief Economist David Seiders, "It's clear that the crisis
in the subprime sector has prompted tighter lending standards
in much of the mortgage markets, and interest rates on prime-quality home mortgages
have moved up considerably during the past month along with long-term Treasury
rates. Homes sales most likely will erode somewhat further in the months ahead
and improvements in housing starts probably will not be recorded until early
next year. As a result, we expect housing to exert a drag on economic growth
during the balance of 2007."
And Mr. Seiders' projections were pretty much borne out by the joint
release of the U.S. Department of Housing and Urban Development/U.S. Census
Department report on housing starts and building permits. While permits issued
in May for all privately owned housing units were up 3 percent from the revised
April rate to 1,501,000, the figure was down 21.7 percent from the revised figures
for May 2006. The April to May increase did not come from permits pulled for
single family houses; those were at a seasonally adjusted rate of 1,056,000,
down 1.8 percent from April. Permits for projects with five or more units picked
up the slack, increasing 17 percent from the previous month and were even up
1.1 percent from May 2006.
Housing starts dropped 2.1 percent from the revised April estimate of 1,506,000
units to an adjusted annual rate of 1,474,000. This is 24.2 percent lower than
the revised May 2006 rate of 1,944,000 units. Single family home starts were
down 3.4 percent from the previous month while projects with five or more units
were started at a rate 3.8 percent higher than in April.
The inventory of permits that have been pulled but for which construction has
not started increased less than 1 percent from April to May and was actually
down 10.6 percent from the permit backlog one year earlier.
Regionally there was not a lot of variation in the rate of permits pulled.
The Northeast had the largest negative change; -6.5 percent from the previous
month while the Midwest was up 5.4 percent. When it came to housing starts,
however, the West continued to fall way off of the pace, down
19.7 percent from the previous month. Both the Northeast and the Midwest recorded
starts slightly in excess of 15 percent better than April levels.