The housing market is tough to read these days. Recent data appear to have been subdued by strong winter storms and continuing weak consumer confidence. Builders remain concerned as well, as the NAHB/Wells Fargo Housing Market Index (HMI) reflects.
After a brief rebound in February to 17, from 15 in January, the HMI fell back to 15 in March (anything above 50 indicates more positive responses than negative and anything below 50 the reverse). The best that can be said at this point is that the index has been essentially flat for nearly a year now, moving in a narrow range.
The Federal Reserve appears to be just as disappointed as NAHB in the housing market’s performance. In the latest FMOC statement, the Fed noted that “housing starts have been flat at a depressed level.” As recently as December it was citing “some signs of improvement over recent months” in the housing sector.
The expiration of the 2009 first-time home buyer tax credit in November did move up some sales that otherwise would not have occurred until December and January. As a result, new home sales have fallen for three months running, reaching a new record-low seasonally adjusted rate of 309,000 in January.
On the positive side, single-family housing starts were essentially unchanged in February from January (down to 499,000 from 502,000 at a seasonally adjusted annual rate) despite the storms that buffeted the South and Northeast. While total starts did drop off significantly from 611,000 to 575,000, this was mainly due to the volatile multifamily starts number, which fell from a relatively strong (based on recent experience) 109,000 units to 76,000. The January/February average of 92,500 starts is in line with the November/December average of 89,500.
Building permits data also suggest a positive direction for single-family construction, which has held steady — at just above a seasonally adjusted annual rate of 500,000 — for the last three months.
The same can’t be said for multifamily permits, which have been falling for two months, no doubt a reflection of the difficulty in obtaining financing for new projects. The one encouraging note — that multifamily permits have been holding above 100,000 — could be tested in coming months.
The home buyer tax credit, which was first expected to expire at the end of November, has affected the timing of home buying in recent months, but its extension and expansion have yet to show a significant impact on sales, as evidenced by January’s disappointing numbers. So far, prospective home buyers have remained hesitant in moving forward even in the face of the new deadlines of April 30 for signing a sales contract and June 30 for closing.
Nevertheless, NAHB expects the latest phase of the credit to increase sales in the period immediately ahead. At this point, most of the eligible new homes have been completed or are under construction.
There were 97,000 completed new homes on the market according to January’s new home sales report, although some had been unsold for more than a year. In the February starts report, there were another 31,000 completions and 284,000 homes in some stage of construction. That should be sufficient to meet expected demand.
However, with builders continuing to experience difficulty in obtaining financing nationwide, it is entirely possible that some shortages could occur in healthier markets where demand is stronger.
Uncertainty seems to rule the day for consumers at present. Consumer confidence, as measured by the University of Michigan’s Consumer Sentiment Index, has fallen in the last two months. At 72.5, the index is back down to its December reading. At the same time, the percent