Builders’ Confidence Remains Flat

MBA (4/16/2008 ) Velz, Orawin
Home builders’ confidence appears to have stabilized near its record low, according to the National Association of Home Builders/Wells Fargo Housing Market Index. The HMI remained at 20 in April for the third consecutive month, two points above the record low of 18 reached in December. (A value of less than 50 indicates that more builders view the market as unfavorable.)
The survey asks builders for their sentiment about current sales, traffic of potential buyers and projected sales over the next six months. The index gauging current sales conditions dropped two points to 18, an all-time low. The index gauging sales expectations for the next six months rose four points to 30. This was the biggest increase in this component in over a year. The index gauging traffic of prospective buyers was unchanged at 19 for the third consecutive month. All indices are seasonally adjusted.

While it is true that the HMI has not deteriorated over the past several months, the lack of any upward movement in the index is discouraging, given that April is usually the start of the traditional home buying season. Builders reported some improvements in traffic through their model homes from the end of last year but noted that increased traffic has not translated to sales.

A separate report indicated that wholesale prices jumped in March. The Producer Price Index (PPI) rose 1.1 percent, following a 0.3 percent increase in February, driven by jumps in energy and food prices. Excluding food and energy items, the core PPI was up 0.2 percent, decelerating from a 0.5 percent increase in February. Holding down the increase in core prices was the decline in the volatile prices for passenger cars and trucks, reversing the increase in the previous month.

Over the past year, the core PPI rose 2.8 percent, the largest gain since July 2005. While the PPI is not a focus for the Federal Reserve’s policy, its recent rising trend is consistent with other price measures. March import prices, released last week, showed the fastest pace monthly increase since November 2007 and the largest year-over-year gain on record.

The yield on 10-year Treasuries stayed around 3.58 percent by mid-Tuesday afternoon, seven basis points lower than the closing rate on Monday.