Wachovia Capital Markets is out with its May "Neighborhood Watch" survey of sales managers at home builder tracts in 20 markets reports that declining price points have yet to stabilize the marketplace.

The survey reports that 26% of 150 sales managers surveyed said traffic was "better than expected" in April, up from 20% in April. But 39% said traffic was "worse than expected," and 20% reported "worse than expected traffic quality," the highest percentage in the history of the survey.

Regarding pricing, 15% said base prices had been reduced over the past 30 days, double the percentage who said so last month and another high for the survey. Another 18% reporting raising prices, but that number was down 24% last month and 30% during April, 2006.

In a research note on the survey, Carl Riechardt, the senior home building and building products analyst at Wachovia, said, "Recognizing that traffic and order activity may be more permanently impaired by a weak mortgage market, high inventories, rising rates and a poor sense of customer urgency, more builders seem, at last, to have moved to base price cuts to boost sales rates."

Reichardt points out that base price cuts are normally the last resort for builders. "Base price cuts have tended to be used relatively infrequently in our survey¹s history," he writes, "because they¹re perceived as wholesale discounts on the 'same house' by purchasers of homes in early phases who dislike having equity cut out from under them.²

That said, the survey indicates the market has yet to respond. "Our survey indicates little response in orders so far. We see little evidence of 'stabilization²'in business conditions in most markets." On a more positive note, Reichardt wrote, "While builders may not have yet found market-clearing pricing to normalize sales rates, at least they appear to be intensifying their efforts, but this will continue to pressure margins in our view."

Regionally, the survey found mixed results. Baltimore and Philadelphia were characterized as weak, D.C. improved slightly and Charlotte rebounded after softness in April. The report stated, "Raleigh/Durham was mixed. Traffic in the Florida markets improved, but pricing was lower. Texas markets were mixed, but had a softer bias with weak sales in Austin and soft traffic in Dallas and Houston. Phoenix strengthened a bit from weak conditions previously with traffic, quality and sales all improving. Las Vegas showed mixed results with poor traffic, but stronger sales and better traffic quality. San Diego was stable, with lower traffic offset by better traffic quality. The Inland Empire improved somewhat while Orange County was weak with no SMs reporting better-than-expected results in any category. NorCal showed softening in traffic quality, sales and especially pricing. Denver was slightly better; Chicago softened and Indianapolis was mostly unchanged."