U.S. home builders are increasingly concerned about conditions in the market for new single-family homes, as illustrated in the September decline in the National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index (HMI). It was the eighth consecutive month of decline in the HMI, which reached a level of 30 in September. This was a three-point drop from an upwardly revised 33 reading in August, and is the lowest level the index reached since February of 1991.
"Builders are adopting an increasingly cautious attitude in their near-term outlook for new-home sales," said NAHB Chief Economist David Seiders. "They're experiencing falling sales, rising sales cancellations and increasing inventories of unsold units. And although many builders are offering substantial incentives to bolster sales and limit cancellations, many potential buyers now are waiting on the sidelines to see how the market shakes out before proceeding with a home purchase.
Seiders this is an "anticipated adjustment period" in the hosing market, coming after years of unsustainable highs. "Our forecast projects the numbers flattening out around the middle of next year and gradually moving back up towards trend in 2008," he added.
"That said, long-term housing fundamentals will be very favorable," he added. "In fact, the housing market that emerges from this correction will have better balance between supply and demand and will be able to ride on excellent underlying fundamentals for years to come."
Derived from a monthly survey that NAHB has conducted for 21 years, the HMI gauges builder perceptions of current single-family homes and sales expectations for the next 6 months as "good," "fair" or "poor." The survey also asks builders to rate traffic of prospective buyers as either "high to very high," "average" or "low to very low." Scores for each component are then used to calculate a seasonally adjusted index where any number over 50 indicates that more builders view sales conditions as good than poor.
Two of the three component indexes declined in August. The component that gauges current single-family home sales declined five points to 32, while the component gauging expected sales in the next six months fell four points to 37. The component gauging traffic of prospective buyers remained even from last month, at 22.
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