Rising mortgage rates, deepening affordability issues and the retreat of investors/speculators from the marketplace have prompted single-family home builders to further adjust their perspectives on the new-home market, according to the National Association of Home Builders/Wells Fargo Housing Market Index (HMI) for June. The HMI declined four points from an upwardly revised reading in the previous month to hit 42 for the latest report, its lowest mark since April 1995.
"Based on historical experience, particularly the 1994-95 episode, the pronounced pattern of movement in the HMI is not inconsistent with the reasonably orderly cooling-down process we're projecting for home sales and single-family housing starts in 2006," said NAHB Chief Economist David Seiders. "We now expect new-home sales to be off by 13 percent from the record posted in 2005. Single-family starts, supported by large builder backlogs of unfilled orders and some continuing reconstruction in the wake of last year's hurricanes, should be down by about 9 percent from the 2005 record."
"Looking at today's numbers, it's important to keep one thing in perspective," added NAHB President David Pressly. "The HMI is a measure of builder sentiment--and attitudes may vary by a greater degree than actual market activity."
Derived from a monthly survey that NAHB has been conducting for close to 20 years, the NAHB/Wells Fargo HMI gauges builder perceptions of current single-family home sales and sales expectations for the next six 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.
All three component indexes declined in June, falling to their lowest levels since early 1995. The index gauging current sales was down three points to 47, while the index gauging sales expectations for the next 6 months fell five points to 50 and the index gauging traffic of prospective buyers declined four points, to 29.
The decline in builder confidence was broad-based and registered in every region this month. The HMI fell seven points to 40 in the Northeast, four points to 25 in the Midwest, two points to 49 in the South and one point to 61 in the West. These regional indexes are all down by similar amounts from their 1995 highs, and the relatively low levels for the Midwest and Northeast reflect relatively weak economic conditions in those parts of the country.
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