Builders’ Confidence Remains at Record Low

MBA (8/19/2008 ) Velz, Orawin
Home builders saw no signs of improvement in the housing market in August. The National Association of Home Builders/Wells Fargo Housing Market Index held steady at 16, matching the record low reached in July. (Readings below 50 indicates that more respondents view conditions as poor.)
The survey asks builders for their sentiments on current sales, traffic of potential buyers and projected sales over the next six months. While the overall index held steady, two out of three of the component indices rose during the month. The index gauging current sales conditions increased to 16 from a record low reading of 15 in July, while the index gauging sales expectations for the next six months increased slightly to 25 from 23.

The NAHB attributed the increase in the latter to builders’ anticipation that a temporary $7,500 tax credit will give enough incentives for reluctant potential first-time homebuyers to get in the market. The index gauging traffic of prospective buyers remained unchanged at the record low of 12.

Regional performance varied. Two regions experienced increases: the Northeast saw a two-point increase to 16, and the Midwest posted a four-point decline to 14. The South’s index was unchanged at 20 while the West posted a three-point drop to 11. In addition to large inventory overhang and tighter lending standards, rising foreclosure rates, which led to deep discount prices in the existing home market, have hurt the new home market, especially in the West.

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 little improvement in the index, new home sales will likely remain sluggish in the coming months.

Long-term Treasury yields declined in response to financial concerns, which ignited a flight to the safe-haven Treasury market. The yield on the 10-year Treasury note stayed around 3.81 percent by mid-Monday afternoon, the lowest rate since mid-May.