Reacting to what they perceive as increasing consumer uncertainty regarding the market for new single-family homes, builders tempered their views on current and expected sales activity in the Wells Fargo/National Association of Home Builders Housing Market Index (HMI) for August, released today. The HMI declined seven points to 32, its lowest level since February of 1991. This was the seventh consecutive month in which builder confidence, as measured by the index, has fallen.
“Two big factors are coloring builders’ perceptions of the market right now – rising sales cancellations and substantial growth in inventories of both new and existing homes,” said NAHB Chief Economist David Seiders. “These factors are largely the result of an increasing number of potential buyers adopting a ‘wait-and-see’ attitude because of uncertainty about where the housing market is headed, and record-high energy costs also appear to be weighing on housing demand. We’re also seeing an anticipated withdrawal of investors/speculators from the market, following a major influx in 2004-2005.”
Derived from a monthly survey that NAHB has been conducting for 21 years, the NAHB/Wells Fargo HMI gauges builder perceptions of current single-family homes and sales expectations for the next six months as “good,” “fair” or “poor.” The survey also asks builders to rate traffic of prospective buyers as either “high to very high,” “average” or “low to very low.” Scores for each component are then used to calculate a seasonally adjusted index where any number over 50 indicates that more builders view sales conditions as good than poor.
All three component indexes declined in August. The component gauging current single-family home sales fell seven points to 36, while the component gauging sales expectations in the next six months and the component gauging traffic of prospective buyers both fell six points, to 40 and 21, respectively.
Regionally, the HMI recorded a three-point decline to 34 in the Northeast, a five-point decline to 15 in the Midwest, a nine-point decline to 41 in the South and a 10-point decline to 42 in the West.
“It’s important to recognize that home sales and housing production are subsiding from record levels a year ago, and those levels clearly were unsustainable,” noted Seiders. “We expect the erosion in market activity to continue through most of this year before stabilizing in 2007.” Seiders also noted that, historically, builder sentiment tends to contract by a greater margin than actual sales and production activity.
“On the bright side for consumers, the economy continues to be in fundamentally good shape, mortgage rates remain near historic lows, house price gains are decelerating, and builders are offering substantial buyer incentives to keep their inventories down. Such favorable market conditions certainly are reason for optimism among those in the market to buy new homes,” Seiders said.NAHB
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Existing-home sales, including single-family and condo, were down in the second quarter in contrast with a record set in the same period in 2005. Despite the overall decline, 20 states showed increases in sales activity from a year ago, according to the National Association of Realtors®.
The quarterly report on total state existing-home sales shows that the seasonally adjusted annual rate* was 6.69 million units in the second quarter, down 7.0 percent from the record 7.19 million-unit level in the second quarter of 2005.
The biggest increase was in Alaska, where existing-home sales rose 48.6 percent from the second quarter of 2005. In Arkansas the second-quarter resale pace rose 17.9 percent from a year earlier, while Texas experienced the third strongest gain, up 11.3 percent. Twenty-eight states and the District of Columbia experienced declines. Complete data for two states was not available.
David Lereah, NAR’s chief economist, said two sets of market conditions are apparent in the report. “When you look at states with high housing costs or that have experienced a prolonged period of rapid price gains, you typically see slower home sales,” he said. “By contrast, states with moderately priced areas that have experienced healthy job creation are seeing sales gains – the economic backdrop remains favorable for the housing market, which is helping home sales to level out.”
According to Freddie Mac, the national average commitment rate on a 30-year conventional fixed-rate mortgage was 6.60 percent in the second quarter, up from 6.24 percent in the first quarter; it was 5.72 percent in the second quarter of 2005.
NAR President Thomas M. Stevens from Vienna, Va., said interest rates have been trending down in recent weeks. “This is good news for buyers who have been on the sidelines; now there is a window of opportunity in the market,” said Stevens, senior vice president of NRT Inc. “In most of the country, buyers can take their time to make an informed decision. We advise buyers to consult a professional in negotiating the buying process, and to cautiously review mortgage options – especially on non-traditional loan products.”
Last week, Freddie Mac, reported that the 30-year conventional fixed-rate mortgage was down to 6.55 percent.
Regionally, the South reported an existing-home sales pace of 2.60 million units in the second quarter, down 4.2 percent from a year ago. After Arkansas and Texas, the next strongest increase in the South was in North Carolina, up 11.0 percent from the second quarter of 2005, while resales in South Carolina rose 9.0 percent; six other Southern states also posted sales gains.
In the Midwest, existing-home sales declined 4.7 percent to a 1.54 million-unit annual sales level from the second quarter of 2005. The strongest increase in the region was in Indiana, up 4.8 percent from a year earlier, followed by Iowa, up 3.8 percent, and Missouri, with an increase of 0.8 percent.
The Northeast saw an existing-home sales pace of 1.15 million units in the second quarter, which was 5.2 percent below a year earlier. Sales activity in Vermont rose 9.1 percent from the second quarter of 2005, while Maine increased 1.5 percent.
In the West, the existing-home sales level of 1.41 million units was 14.7 percent lower than the second quarter of 2005. After Alaska, the best performance the region was in New Mexico where existing-home sales rose 6.2 percent from a year earlier; Wyoming sales increased 5.7 percent while Montana rose 5.2 percent.
The National Association of Realtors®, “The Voice for Real Estate,” is America’s largest trade association, representing more than 1.3 million members involved in all aspects of the residential and commercial real estate industries.
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* The seasonally adjusted annual rate for a particular quarter represents what the total number of actual sales for a year would be if the relative sales pace for that quarter was maintained for four consecutive quarters. Total home sales include single family, townhomes, condominiums and co-operative housing. NAR began tracking the state sales series in 1981.
Seasonally adjusted rates are used in reporting quarterly data to factor out seasonal variations in resale activity. For example, sales volume normally is higher in the summer and relatively light in winter, primarily because of differences in the weather and household buying patterns.
Tables of state resale rates, percent changes and some historic data are available at the site below under Research – click on Housing Statistics, then scroll down the center to State Existing-Home Sales.Walter Molony
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