Slump in Builder Confidence Continues for Eighth Month
Reflecting increasing builder concerns about conditions in the market for new single-family homes, the NAHB/Wells Fargo Housing Market Index (HMI) declined for an eighth consecutive month to a level of 30 this month, a three-point drop from an upwardly revised 33 in August and the lowest level on the index since February 1991.
“Builders are adopting an increasingly cautious attitude in their near-term outlook for new-home sales,” said NAHB Chief Economist David Seiders. “They’re experiencing falling sales, rising sales cancellations and increasing inventories of unsold units. And although many builders are offering substantial incentives to bolster sales and limit cancellations, many potential buyers now are waiting on the sidelines to see how the market shakes out before proceeding with a home purchase.
“We are in the midst of an anticipated adjustment period as the housing market subsides from the record-breaking and unsustainable highs of the past few years,” Seiders noted. “Our forecast projects the numbers flattening out around the middle of next year and gradually moving back up towards trend in 2008."
“That said, long-term housing fundamentals will be very favorable,” he added. “In fact, the housing market that emerges from this correction will have a better balance between supply and demand and will be able to ride on excellent underlying fundamentals for years to come.”
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 home sales, sales expectations for the next six months and the traffic of prospective buyers. 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.
Two of the three component indexes declined in August. Current single-family sales declined five points to 32 and expected sales in the next six months fell four points to 37. The component gauging traffic of prospective buyers remained even from last month, at 22.
The HMI dropped six points to 28 in the Northeast, five points to 38 in the West and three points to 38 in the South. The index held steady at 16 in the Midwest, where fundamentally weak economic conditions continue to weigh on the market.
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