US housing - you know the drill

Sorry I'm still catching up with the news over the last few days. Couldn't let the US housing data slip by without some comment.

New homes starts rose by 2.3%, to a seasonally adjusted annual rate of 1.467 million in June, 19.4% below where they were at the same time last year.

Meanwhile, building permits fell by 7.5% in June, to a pace of 1.406 million annualized - 25.2% below June 2006 levels.

Remember that these numbers are volatile and subject to large sampling and other statistical errors. In most months, the government can't be sure whether starts increased or decreased. Large revisions are common. Permits are generally considered a better indicator of building fundamentals than starts, which can be heavily influenced by weather conditions. The sampling error on permits is also lower.

Not a pretty picture if we take the more reliable permits data as a proxy for the state of the housing market. Add to that the latest reading from the NAHB's builder confidence index and US housing is still looking pretty sick.


Home builders' confidence plunges again in July
Housing starts could begin gradual recovery next year, builders say

By Rex Nutting, MarketWatch

Last Update: 4:48 PM ET Jul 17, 2007

WASHINGTON (MarketWatch) - With interest rates moving higher, a glut of homes sitting unsold, and the problems in the subprime mortgage market worsening, U.S. home builders' confidence in the housing market plunged further in July, according to a monthly survey released by the National Association of Home Builders.

The NAHB/Wells Fargo housing market index dropped four points to 24 in July, the lowest since the 20 recorded in January 1991 and the third lowest reading in the 22-year history of the survey.

The index was at 39 a year ago and peaked at 72 in June 2005, when nearly three-fourths of builders were upbeat about the market.

"The bottom of the housing market appears nowhere in sight," wrote Patrick McPherron, an economist for Moody's Economy.com.

The decline in the home builders' index mirrors the massive slump in home building and home sales seen in the past two years. Starts of single-family homes are down 36% from the peak, while sales are down 20%.

"The home builders survey probably overstates the extent of weakening in combined sales activity," argued Tony Crescenzi, chief bond market strategist for Miller Tabak & Co., who pointed to robust applications for mortgages. Others say the mortgage application data have become misleading because lenders have tightened their standards so much; what's important is how many applications are approved, not how many come in the door.

Economists surveyed by MarketWatch were expecting the builders' index to fall to 27 in July.

At 24, the index shows that about a fourth of all builders view the housing market as "good."

"The bottom line is that the single-family housing market is still in a correction process following the historic and unsustainable highs of the 2003-2005 period," said David Seiders, chief economist for the builders' trade group.

"Builders are actively trimming prices and offering buyer incentives to work down their inventories, but meanwhile there is a large supply of vacant existing homes on the market, and affordability problems persist despite efforts to attract buyers," Seiders said.

Seiders said he expected home sales to begin to move up later this year, and said housing starts could begin "a gradual recovery process" early next year.

The government will report its estimate for June housing starts on Wednesday. Economists expect a 1.6% drop to a seasonally adjusted annual rate of 1.45 million, the second lowest total in the past 10 years.

Despite Seiders' hopes for a rebound, the builders throughout the nation grew more pessimistic in July. In all four regions, builder confidence was the lowest ever recorded in the three years since the regional data have been analyzed.

The index is constructed by asking builders for their sentiment about current sales, projected sales and traffic of potential buyers through developments. Builders were more pessimistic about all three questions in July, with readings on the three subindexes plummeting to the lowest levels since early 1991.

The index for sales of single-family homes dropped by five points to 24, the third lowest ever. The index for future single-family sales fell by five points to 34, the fifth lowest ever. The index for buyers' traffic fell by three points to 19, the fourth lowest ever.