Wednesday, August 15, 2007

Homebuilder Confidence Lowest Since 1991

From the NAHB:

Highly visible problems in the housing finance system are contributing to a wait-and-see attitude among prospective home buyers and reducing builder confidence in the single-family housing market, according to the latest National Association of Home Builders/Wells Fargo Housing Market Index (HMI), released today. The HMI declined two points to 22 in August, its lowest level since January 1991.

“Builders realize that issues related to mortgage credit cost and availability have become more acute, filtering some prospective buyers out of the market and prompting others to delay their decision to purchase a new home,” said NAHB President Brian Catalde, a home builder from El Segundo, Calif. “Builders are responding by trimming prices and stepping up non-price incentives to bolster sales and limit cancellations, although we’re dealing in a difficult market environment.”

“There is no question that problems in the subprime mortgage sector have spilled over to other components of housing finance, including the Alt.-A and jumbo markets, delaying a revival of the single-family housing market,” added NAHB Chief Economist David Seiders. “However, the government-related parts of the mortgage market still are functioning well and the underlying economic fundamentals promise to remain solid for some time – providing support to the longer-run housing outlook. We now expect to see home sales return to an upward path by early next year and we expect housing starts to begin a gradual recovery process by mid-2008. From there, the market will have plenty of room to grow in 2009 and beyond.”

The last paragraph is pretty laughable. Lenders have tightened their lending standards. The inventory of new and existing homes stand near all time highs and the mortgage market is generally a really big mess right now. While the credit markets might be better by early 2008, I don't see lending standards loosening up anytime soon. This lowers the number of buyers in an already over-supplied market. I think early 2008 is way too optimistic.