Builders grew slightly more glum in September despite record low mortgage rates and evidence from several big public builders that sales and prices appear to have stabilized.
The National Association of Home Builders/Wells Fargo Housing Market Index(HMI) for September dropped one point from August to a reading of 14, marking the sixth consecutive month that the index has been range bound between 13 and 16, NAHB said Monday. Analysts were expecting a reading of 15. Any reading below 50 indicates negative sentiment. The last time the index was above 50 was the spring of 2006.
"The fact that the HMI continues to hover within such a narrow, low range reflects builders' awareness that many consumers are simply unwilling or unable to move forward with a home purchase in today's uncertain economic climate," said David Crowe, NAHB chief economist. "While some bright spots are beginning to emerge in about a dozen select metro areas, the broader picture remains fairly bleak due to the weak economy and job market."
The HMI's component indices were down across the board. The current sales conditions index slipped a point to 14; the sales expectations in the next six months index dropped two points to 17; and the traffic of prospective buyers index dropped two points to 11.
Regionally, the HMI in the Midwest rose one point to 11, the Northeast and South each dropped two points to 15 and the West lost three points to 12, compared to the prior month.
"Very little has changed in terms of housing market conditions so far this year," said NAHB Chairman Bob Nielsen, a home builder from Reno, Nevada."Builders continue to confront the same challenges in accessing construction credit, obtaining accurate appraisal values for new homes, and competing against foreclosed properties that they have seen for some time. Beyond this, both builder and consumer confidence took a hit in recent weeks with the market disruptions caused by the S&P downgrade and congressional gridlock on the budget deficit."
Still, recent earnings reports from Hovnanian Enterprises (NYSE:HOV) and Lennar Corp. (NYSE:LEN), as well as a Monday pre-release of summer order data from Ryland Group (NYSE:RYL) showed substantial increases, and average selling prices have risen as well. Michael Rehaut, home-building analyst at J.P. Morgan, took note of this in his investor alert on the HMI.
"While slightly disappointing, we do not view this decline as an indication of any material decline in activity, as the index was at 15 for the prior two months and was 13 in June, and also point to recent builder orders, including HOV, RYL, and LEN, indicating August as being fairly steady, in our view," Rehaut wrote.