Housing Market Index Stable – Still in Weak Territory

For five straight months, the National Association of Homebuilders/Wells Fargo Housing Market Index (HMI) has trended up. The HMI has gained 14 points since September. The National Association of Homebuilders (NAHB) latest release shows March sentiment index unchanged from February.

The NAHB also revised February’s index down one point, from 29 to 28 points. At 28 points, March index came in below the 30 point expected by economists polled by Reuters.

 A Measurement of NAHB Members’ Sentiments

The index is comprised of data from a monthly survey taken of the NAHB membership. The survey gauges builders’ confidence about the single-family housing market. Participants rate questions about market conditions as good, fair or poor. The HMI measures sentiment across two periods – the present and six months into the future.

In addition, the HMI determines builders’ confidence about homebuyers’ traffic level for new home developments. Members designate the responses to traffic flow as high to very high, average or low to very low. The NAHB has taken the survey, since 1992.

Insights into March Numbers

The index polled 403 builders form each region – Northeast, Midwest, South and West. In March, the figure for current sales loss one point compared to February. The Wall Street Journal reports on their blog the Northeast had a five-point gain and sentiment in the Midwest and south increased by two points. Builders’ sentiment in the West fell by 10 points.

Overall, builders express optimism over the prospects for sales in the next six month, registering a two-point increase. The builders’ rating of homebuyer traffic remained unchanged. The Western region of the country was the only region that recorded a decline in sentiment.

Dampens Optimism about the Housing Market

Before the index started trending up last fall, homebuilders’ sentiment vacillated within a thin range for a significant duration. At the current reading of 28, the current index signifies “poor” market conditions. The HMI must reach a reading above 50, which represents the point at which builders view housing market conditions as “good” instead of “poor.” The Housing Market Index has not seen a reading above 50 since April 2006.

However, it has moved to its highest point since June 2007. As the housing market continues to dwell in weak territory, NAHB chairperson Barry Rutenberg, say that builders are exercising caution, but there is a “sense that many local housing markets have started to move in the right direction and that prospects for future sales are improving.”

According to the chief economist of  the National Association of Home Builders, David Crowe,  NAHB members  believe the  housing market still faces impediment to  transitioning to a  more favorable  market condition: 1) tighter credit standards by  lenders for  home builders and home buyers and 2)  the high inventory of foreclosed homes on the market.

The Housing Starts and New Home Sales reports come out on Tuesday and Friday this week. These reports will provide more data points for industry analysts to help evaluate the current state of the housing market and the economy and further clarify its direction.