US housing still doing it tough

As can be seen from the graph below the National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index (HMI), released on Monday shows the HMI at it's lowest level since the 1991 recession, currently sitting at 28.



If you are wondering like I was what the HMI index measures here is the lowdown courtesy of the NAHB.

Derived from a monthly survey that NAHB has been conducting for more than 20 years, the NAHB/Wells Fargo HMI gauges builder perceptions of current single-family home sales and sales expectations for the next six months as either “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.

This is what a few of the NAHB spokesman had to say about the latest index reading. Firstly the NAHB President Brian Catalde, a home builder from El Segundo, California:

“Builders continue to report serious impacts of tighter lending standards on current home sales as well as cancellations, and they continue to trim prices and offer a variety of nonprice incentives to work down sizeable inventory positions,”

And this from the NAHB's chief economist.

“It’s clear that the crisis in the subprime sector has prompted tighter lending standards in much of the mortgage market, and interest rates on prime-quality home mortgages have moved up considerably during the past month along with long-term Treasury rates,”

“Home sales most likely will erode somewhat further in the months ahead and improvements in housing starts probably will not be recorded until early next year. As a result, we expect housing to exert a drag on economic growth during the balance of 2007.”

Doesn't really jibe with the official tune that claims the housing market has turned the corner does it? And while we're on the subject of housing....


Housing starts down, permits up
If you remember last month it was the opposite of the above, permits we're down and starts were up. It's not surprising that permits rebounded from their 10 year lows and biggest percentage fall in 17 years in April to be up 3% in May. Nor it surprising that starts fell 2.1% in May. In fact it's never really surprising what starts do since the standard error is so large - for May it was 8.1%. The standard error for permits is much lower at 1.4% and since permits lead starts you could say that this is mildly positive news or you could say like Mission Residential's chief economist Richard Moody that:

"The data seem eerily calm," .... "Simply put, there is too much inventory lingering in the market, and the most recent data suggesting rapid growth in the number of foreclosures mean the inventory overhang will become more severe, particularly with higher mortgage rates taking a bigger bite out of demand."

Or you could say something totally meaningless and non-committal like Ken Mayland, chief economist for ClearView Economics

"We are making progress toward the point where housing can be said to be 'stabilizing,' "

If one of my students (whose first language is not English mind you) wrote something like that I'd ask them to re-write it. Sorry Ken but your view is anything but clear.