Housing Bubble Watch: Reports Paint Confusing Picture
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The usual spate of monthly reports on new home sales, existing home sales, housing
starts, and builder confidence were all released recently. Taken together they
do little to clarify the state of the housing market.
First out was the National Association of Home Builders/Wells Fargo Housing
Market Index (HMI) for June. This index results from a survey of builder attitudes
that NAHB has been conducting since the mid-1980s. Home builders
are asked to express their perceptions of current single family home sales and
their expectations for those sales over the next six months as good, fair, or
poor and to rate buyer traffic along a six point axis from very low to very
high. Scores from each component are used to calculate seasonally adjusted indices
where any score over 50 indicates that more builders view the conditions they
are confronting as good rather than poor.
In June these indices all fell to their lowest levels in over 11 years. The
index for current sales was down three points (since May) to 47, sales expectations
dropped from 55 to 50, and perceptions of buyer traffic was at 29 compared to
33 the previous month.
The decline in builder confidence registered in every region but builders in
the West scored at 61, only one point lower than May, while the Midwest was
down four points to 25.
The next release, also from NAHB was a surprising report on housing
starts. May figures for all starts rebounded from a 13 month low registered
in April, increasing by 5 percent with single family starts increasing 2.1 percent
to a seasonally adjusted 1.586 million units. Regionally three out of four areas
reported increases from 1.7 percent in the Northeast to 15.8 percent in the
West. The Midwest which had been up significantly in April dropped 15.8 percent
in May.
The President of the NAHB referred to the consistent decline in builder confidence
since mid-2005 and suggested that builders have been drawing down on "the
backlog of unused permits for houses sold earlier." David Pressley stated
that "Many builders have reported that they are offering incentives in
an effort to limit the number of potential (building contract) cancellations."
The same report, however, noted a decline in the issuance of new building permits.
These were down 2.1 percent for both single and multi family housing units from
April levels, continuing a downward slide that started after peak numbers in
September 2005. Permits in May were issued at a pace of 1.466 million units
and 466,000 multifamily permits (annualized) were pulled.
The U.S. Census Bureau in conjunction with the U.S. Department of Housing and
Urban Development released data on the sales of new residential property
in May. Again a pleasant surprise. The preliminary April estimate was revised
upward to 1,180,000 and preliminary figures showed that May was sailing along
at a level 4.6 percent higher than those revised April figures. This was down
5.9 percent from figures a year earlier but still an indication of a strong
market for new homes.
The median price of new homes sold in May was $235,300 and the average was
$294,300. These were both down from April 2006 figures of $238,500 and $298,300
figures respectively.
There is currently a 5.5 months supply of new homes on the market at present
absorption rates, compared to 5.8 months in April. In May one year ago, however,
the supply was 4.2 months - a year-over-year increase of 31 percent.
The final report was the National Association of Realtors® monthly survey
of sales of existing houses. Total existing home sales, including
single-family houses, condominiums, co-ops, and townhouses were off 1.2 percent
to a seasonally adjusted annual rate of 6.67 million units in May. The April
figure was 6.75 million units and one year ago the pace was at 7.14 million.
Thus year over year sales are down 6.6 percent. In the West, however, sales
were down 13.5 percent since last year.
Prices, however, continued to move upward, although at what NAR called a "near
normal rate." The national median price for existing homes (all types)
was $230,000, an increase of 6 percent from May 2005 when the median was $217,000.
At the end of May 3.60 million existing homes were available for sale -
a 6.5 month supply at the current rate of sales. This is a 5.6 percent increase
in unsold units over last May.
Condos and co-ops were selling at an annual rate of 852,000 units, 1.9 percent
higher than in April but 6.6 percent below the 912,000 pace one year ago. Single
family house sales slipped 1.5 percent since April to an annual rate of 5.82
million which was 6.6 below sales in May 2005 and the median single home price
was $229,700, up 6.4 percent from the same month in 2005.
NAR President Thomas M. Stevens said the survey results should be kept in perspective.
A yearly sales rate of six million units was unheard of until 2003, "so
the current level of home sales is still pretty healthy by historic
standards. Housing is continuing to support the overall economy by
providing a sound foundation for other sectors to grow - the normalization
that is taking place in the housing market is good for the long-term health
of the industry."
Reading the three surveys with their contradictions is sort of like watching
the swirling around the water does as the tide changes. For a few minutes it
looks like the ocean is unsure in which direction it is headed; however, it
forever and always decides to reverse direction. It could be that the housing
market is only resting for a bit before it continues to plunge ahead.
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