Builders are less positive about conditions in the new single-family home market than they have been since winter, the National Association of Home Builders reported Tuesday.
The NAHB/Wells Fargo Housing Market Index (HMI) dropped back to 17 this month from 22 in May, snapping a string of two consecutive monthly gains and putting the index back to where in was in February. Wall Street was looking for another reading of 22.
"We expected some softening in the market following the expiration of the home buyer tax credit, and this report seems to verify this assumption," said David Crowe, NAHB chief economist. "Builders still remain very cautious and are aware that several factors could impede the nascent housing recovery, including serious problems in obtaining financing for the production of housing, faulty appraisal practices and competition from short sales and foreclosed properties."
All the HMI's component indices dropped. The current sales condition index fell five points to 17; the sales expectations index for the next six months dropped four points to 23 (from a one-point downward-revised index level of27 in May); and the traffic of prospective buyers index fell two points to 14. The sales expectations index was at its lowest point since March, 2009.
The Northeast led the declines with a 17-point drop--nearly 50%--to 18, following a 14 point increase in May. The NAHB cautioned that the Northeast index is based on the smallest sample among the regions and is subject to "greater month-to-month volatility." The Midwest index lost three points to come it at 14; the South dropped three points to 19; and the West declines four points to 15 from a revised May level of 19.
David Goldberg, home building analyst at UBS, said in a note to investors that the June HMI, though lower than his estimate of 19, was not unexpected."We continue to believe fundamentals in the housing market are approaching a trough," he wrote. "We anticipate continued uncertainty over the next few months, reflecting the further impact of the expiration of the tax credit.This should ease, however, toward the end of the year as signs of stabilization--and a gradual recover--become more evident."
The HMI is a seasonally adjusted aggregate of the three component indices in which the number 50 indicates neutral sentiment, anything under 50 negative sentiment and over 50 a positive view.
"We expected a temporary pull back in the builders' outlook after the credit expired at the end of April," said Bob Jones, a home builder from Bloomfield Hills, Mich. who is NAHB chairman. "However, the reduction in consumer activity may have been more dramatic than some builders had anticipated, which resulted in their lower confidence levels."