Builder Spirits Not Rebounding While Housing Starts, Permints Continue To Slide

There is an old Western expression that a person's mood is "lower than a snake's belly." Well lift up that snake and you just might find a home builder under it.

The National Association of Home Builders (NAHB) released the results of its monthly survey of builder confidence on this week and found that confidence even more shaken by continued problems in the mortgage industry than it was in September. Continuing high inventories of unsold homes and what is perceived of as generally negative media coverage of the housing situation is also leaving builders increasingly less hopeful about a short-term recovery in the housing market.

The report stressed that, while builders are reporting that their sales incentives are attracting interest, "many potential buyers are either holding out for even better deals or hesitating due to concerns about negative and confusing media reports on home values.

NAHB Chief Economist David Seiders said, "Consumers are still trying to sort out market realities and get the best deals they can. Many prospective buyers may very well have unrealistic expectations regarding new-home prices as well as how much they can expect to receive for their existing homes. When the market is in proper balance, people can recognize a good deal when it comes along; at this point, they view a good deal as a moving target."

NAHB in cooperation with Wells Fargo has been conducting the survey upon which the Housing Market Index (HMI) is based for 20 years. Builders are asked to rank the housing market on three criteria - current single family home sales and sales expectations for the next six months each of which are evaluated as good, fair, or poor, and current buyer traffic which is rated from very low to very high. For each of the three components any score over 50 indicates a good degree of builder confidence as does such a score for a composite of the three.

The overall HMI for October was 18. This was two points below the September HMI and the lowest recorded since the survey began in 1985. The index gauging current single family home sales also declined 2 points to 15.

The positive news from today's report, said Seiders, is that builder expectations for sales conditions in the next six months held steady at 26. "Builders believe they are taking the right steps to reduce inventories and position themselves for the market recovery that lies ahead," he said. "Indeed, NAHB's housing forecast indicates that home sales should stabilize within the next six months and show significant improvement during the second half of next year."

The NAHB survey, however, was conducted well before today's report from the Census Bureau and the Department of Housing and Urban Development on housing starts and permits issued during the month of September. The report sent Wall Street into a temporary tailspin.

Housing starts in the month of September were at a seasonally adjusted annual rate of 1.191,000 units, a 10.2 percent decline from the revised August figure of 1,327,000 and 30.8 percent fewer starts than the 1.721,000 starts in September 2006. However, single family housing starts were only 1.7 percent below the August figure; it was the initiation of projects with five or more units that slipped drastically, down 36 percent since the previous month. This was the lowest rate of new construction activity since March 1993.

Starts in the Northeast Region, however, were up a remarkable 45.4 percent in September while the other three regions were in the negative double digits.

Builders pulled permits to build 1,226,000 units in September, 7.3 percent fewer permits than were issued in August and 25.9 percent fewer than in September 2006 when an estimated 1,654,000 permits were issued.

Builders are sitting on an estimated 1,874,000 permits for which construction has not yet begun but this is a 4.2 percent decline from the August number and is 8.6 percent lower than the figure one year ago.