US housing takes another leg down

The US housing market revisited some lows over the past couple of days. Yesterday we heard that the National Association of Home Builders (NAHB)/ Wells Fargo housing market index fell two points in August to 22.

Numbers over 50 indicate more builders think conditions are good than think they are bad.Obviously the majority don't think it's good. Frankly I'm surprised anyone does. A year ago, the index was at 33. Two years ago it was at 67.


Then today we hear that housing starts were down 6.1% to a seasonally adjusted annual rate of 1.381 million, the lowest since January 1997. The decline was bigger than the expected drop to 1.40 million.

Also building permits as shown above dropped 2.8% in July to a seasonally adjusted annual rate of 1.373 million, the lowest since October 1996 and less than the 1.40 million expected by economists.

As pointed out numerous times before 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.

Still not many positives to take away from the latest round of housing data. We have been hearing from homebuilders, mortgage brokers and more recently from the likes of Home Depot (HD) that they expect the housing market to remain soft into 2008. Some not predicting a turn around until 2009.

One bright spot was yesterday's release from the National Association of Realtors (NAR) which showed 97 out of 149 metropolitan statistical areas show year-over-year increases in median existing single-family home prices.

In the 1Q07, revised data shows 83 areas had annual price increases, while in the 4Q06 only 68 areas were up.

Lawrence Yun, NAR senior economist had this to say:

"Although home prices are relatively flat, more metro areas are showing price gains with general improvement since bottoming-out in the fourth quarter of 2006.” “Recent mortgage disruptions will hold back sales temporarily, but the fundamental momentum clearly suggests stabilizing price trends in many local markets."

Just how temporary 'recent mortgage disruptions' turn out to be is a wait and see for now.