Wednesday, October 17, 2007

Homebuilder Blues: NAHB/Wells Fargo Home Builder Ratings October 2007

Yesterday, the National Association of Home Builders (NAHB) released their Housing Market Index (HMI) showing additional evidence that the new home market is experiencing a new leg down in declines.

The release came along with a renewed sense of reality and some guarded, yet optimistic, outlook from Chief Economist David Seiders who continues to see home sales recovering by the second quarter of 2008.

“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. … 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.”

It’s important to understand that each component of the NAHB housing market index is now sitting AT OR BELOW the worst levels ever seen in the over 20 years the data has been being compiled.

This suggests that the current severe correction has surpassed all other events seen in the last 22 years and is now firmly in uncharted territory.

Measuring builder confidence across six key data points, the builder survey has been a bellwether for the new home market since 1985.

The component measures used to formulate the overall HMI are respondent ratings on “present conditions”, “future conditions” and “buyer traffic” all of which continue to indicating significant current and future weakness as the new home market slumps its way slowly forward.

The following charts show “present conditions”, “future conditions” and “buyer traffic” both smoothed since 1986 and unadjusted since 2005 (click for larger versions).
Keep in mind that for each measure respondents are asked to assign both a “good” and “poor” rating so in each chart you will notice “good” slumping while “poor” is surging.