Builders’ Confidence Erodes; Regional Manufacturing Activity Deteriorates

MBA (6/17/2008 ) Velz, Orawin
Home builders saw no signs of improvement in the housing market in June. The National Association of Home Builders/Wells Fargo Housing Market Index declined to 18 from 19 in May. (Readings below 50 indicates that more respondents view conditions as poor.) The index matched the record low reached in December 2007 and has hovered within two points of the historical low over the past 10 months.

The survey asks builders for their sentiments on current sales, traffic of potential buyers and projected sales over the next six months. Both the indices gauging current sales conditions and sales expectations for the next six months remained unchanged at 17 and 28, respectively. The index gauging traffic of prospective buyers fell one point to 17.

Regional performance varied significantly, with two regions experiencing declines. The Northeast saw a six-point decline to 12—its lowest reading since the NAHB began releasing regional figures in December 2004—while the West posted a four-point decline to 16. The Midwest’s index rose five points to 17. The South’s reading was unchanged at 22.
The Housing Market Index is considered one of the leading indicators of future home sales because it also captures sales expectations over the next six months. Given eroding builders’ confidence to such a low level, new home sales will likely get worse before they get better. In its June mortgage finance forecast released on June 11, the Mortgage Bankers Association projected that home sales will continue to decline modestly and will hit bottom in the fourth quarter at 506,000 units (seasonally adjusted annualized rate)—the slowest quarterly pace since the first quarter of 1991.

A separate report showed that manufacturing activity in the New York Federal Reserve Bank District contracted in June, according to the New York Fed’s Empire State manufacturing survey. The general business conditions index fell to negative 8.7 from negative 3.2 in May. This was the fourth negative reading, which indicates contracting activity, in the past five months.

Long-term Treasury yields declined in response to weak economic reports but later reversed. The yield on the 10-year Treasury note stayed around 4.22 percent by mid-Monday afternoon, about the same as the closing rate on Friday.