The Home Builders Index is Down Again in August

The NAHB/Wells Fargo housing market index is down again in August according to Market Watch. Most of the component indices are at or near the lows most of which were set in 1991, the last severe housing decline. With these values being set so late in the house buying cycle of the year, I fully expect most of these indices will set new lows later this year.

Battered by daily headlines about severe problems in the credit markets, U.S. home builders grew even more pessimistic in August, driving a monthly sentiment gauge to the lowest levels since January 1991, the National Association of Home Builders reported Wednesday.

The NAHB/Wells Fargo housing market index fell two points in August to 22, which means about a fifth of builders nationwide think the market is "good." A year ago, the index was at 33. Two years ago it was at 67.

Numbers over 50 would indicate more builders think conditions are good than think they are bad.
Over time, the home builders' index has been correlated with single-family housing starts, which are down 37% from their peak.

All three components of the home builders' index fell to cyclical lows in August, with two of them matching the lowest readings in the 22-year history of the index. Confidence fell in three of four regions and was unchanged in the South.

"There is no question that problems in the subprime mortgage sector have spilled over to other components of housing finance, including the Alt-A and jumbo markets, delaying a revival of the single-family housing market," said NAHB chief economist David Seiders in a statement.

The index measuring current sales of single-family homes dropped by one point to 23, the lowest since the record-low 19 in January 1991. The index measuring expected sales in the next six months dropped by two points to 32, matching the record low. The index measuring traffic of prospective buyers through developments fell by three points to 16, also matching the record low.
"Builders realize that issues related to mortgage credit cost and availability have become more acute, filtering some prospective buyers out of the market and prompting others to delay their decision to purchase a new home," said NAHB President Brian Catalde, a home builder from El Segundo, Calif.

"Builders are responding by trimming prices and stepping up non-price incentives to bolster sales and limit cancellations, although we're dealing in a difficult market environment," Catalde said. Regionally, the index was unchanged at 25 in the South, fell one point to 23 in the West, fell five points to 14 in the Midwest, and fell two points to 30 in the Northeast.