Housing Starts Dive But Builder and Buyer Confidence Are Up

The Census Bureau and the U.S. Department of Housing and Urban Development have released October figures on building permits and housing starts and the news is not good.

Housing permits were issued at an annual rate of 1,535,000 in October which is 6.3 percent behind the pace in September and down 28.0 percent from the October 2005 level. Permits for single family construction fared slightly better short term, declining only 3.8 percent since last month but were off 31.7 percent since last year.

Housing starts dropped 14.6 percent from the September rate to 1,486,000 units but this was a 27.4 percent below the rate one year ago. Single family starts declined 15.9 percent since September and were off nearly 32 percent from the estimate in October 2005.

The industry is suffering disproportionately in the western region of the U.S. where single family starts were down 9.7 percent since last month and 41.8 percent year-over-year.

But while builders appear to be pulling back in actual building activity, their confidence seems to be rebounding. The National Association of Home Builders/Wells Fargo Housing Market Index (HMI) gained two points from the October survey and is now at 33.

The HMI is constructed from responses builders make to questions about their perceptions of current single-family home sales, their expectations for sales over the next six months and their perceptions of current buyer traffic. Responses are then used to construct an index for each category and an overall index. Any score over 50 is an indication that more builders view conditions as good than poor.

Perceptions of current sales moved one point higher to 33 while the component gauging expectations for the next six months was up four points to 46 and perceptions of buyer traffic improved to 26 from 23.

All three components began to recover last month after eight straight months of declining builder confidence.

NAHB President David Pressly said, "More and more builders are seeing light at the end of the tunnel. Our members are telling us that the market is steadying after a significant downward correction. On the demand side, we look for sales to stabilize and gradually move up in the coming months. With builders continuing to offer significant sales incentives and affordability on the rise, home shoppers have greater opportunities today than they have had for several years, making this an opportune time to buy."

A second NAHB survey released this week indicates that Americans have not lost confidence in housing as a worthy investment.

A survey conducted by RT Strategies between October 26 and October 29 showed that 81 percent of homeowners believe that the homes will increase in value over the next five years compared to 13 percent who thought values would decline. 69 percent of those surveyed listed their home as their most valuable investment. The runner-up was 401(k) and other retirement accounts, far behind at 11 percent.

The survey was conducted with 2,000 households, including more than 1,750 registered voters. The significance of the latter figure is unclear.

"The poll clearly debunks the more sensational media reports speculating on the demise of the housing market," said NAHB President Pressly, "It is interesting to note that other polls conducted by major news organizations have come up with similar results, indicating that despite the current housing market downturn Americans resoundingly believe that buying a home is the best investment they can ever make."