Housing Market Index (HMI) Falls to New Lows

The July National Assoc of Homebuilders index fell to a record low of 16, down 2 from June and vs the expectations of an unchanged reading.

Present conditions and future expectations both fell and the Prospective Buyers Traffic went to a new low, falling 4 points.

Buyers traffic did rise in the Northeast but fell sharply in the Midwest. The South and West also had declines. Aside from the reduction in the access to credit and drop in confidence, the weakening jobs market is now having its impact too.

Here is the official chart:

The NAHB/Wells Fargo Housing Market Index Components (HMI)

NAHB measures the strength of the single-family housing market each month through surveys of NAHB members.
I actually like Calculated Risk‘s chart much better — showing the recessions clarifies things:



NAHB/Wells Fargo Housing Market Index (HMI)

NAHB: Builder Confidence Declines to Record Low
Calculated Risk, July 16, 2008 http://calculatedrisk.blogspot.com/2008/07/nahb-builder-confidence-declines-to.html


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What's been said:

Discussions found on the web:
  1. ReturnFreeRisk commented on Jul 16

    More evidence that the housing market has bottomed. Yeah right. The treasury/fed should think about at what prices they are taking on large amounts of housing on their balance sheets. If houses fall another 15% from here, the taxpayer will be responsible for a lot of money.

  2. Chief Tomahawk commented on Jul 16

    Meanwhile Dennis Kneale is turning cartwheels: “Has the bubble burst for commodities?”

  3. Jim Haygood commented on Jul 16

    Now the HMI has dropped even lower than in 1991, which was the last time SoCal was in housing depression.

    But kind Uncle Ben says we’re not in recession.

    Who you gonna believe — Helo Ben, or the homeless homebuilders holding their cardboard signs on the freeway on-ramps?

  4. DL commented on Jul 16

    Karl Case, Larry Kudlow, and Barrons have all assured us that the housing decline is over, and a rebound has begun.

  5. Bernard Guerrero commented on Jul 16

    Barry, eyeballing the chart it would appear that formal NBER recessions tend to correlate with local HMI bottoms. That also holds for the mini-recession in ’95.

  6. Jeff commented on Jul 16

    THIS time I MEAN IT – we’re definitely, most definitely at the “bottom” in housing. Buy, buy, BUUUUYYY!! Goldilocks lives!

  7. johnnyvee commented on Jul 16

    Since Fannie Mae and Freddie Mac are now the only secondary market investors that are buying mortgages, wait until they have to pause and/or slow such purchases further– at the very least, the transitions with these institutions will cause further disruptions, if not total meltdowns-even if somewhat temporary.

  8. Jeff commented on Jul 16

    Now since we’ve cleared that up, and Goldilocks is humming a nice little tune again, anyone wanna buy a house? (bought in spring ’05)

  9. Sean commented on Jul 16

    That is some HOT chart porn. It seems with every housing report, the date range has has to extend back further to find a similar low range. I’m not seeing a bottom. I’m seeing a cliff.

  10. sweeny texas commented on Jul 16


    Another 15% reduction in home prices ain’t even close to being enough to bring median home prices in line with median income in this country. It’ll take another 25 to 30% reduction to get affordability back in line with incomes, especially since the cost of breathing is off the charts now.

  11. sweeny texas commented on Jul 16

    I wonder if it’s possible for the housing index to go negative? :)

  12. me commented on Jul 16

    As the market goes higher and higher – get all that bad news out.

  13. Lori Helwing commented on Jul 16

    NAHB Index posts fresh cycle lows
    The National Association of Home Builders housing market index fell from 18 in
    June to a record low of 16 in July, below our expectation of 18. Every component
    registered declines over the month including the current sales index, which
    suggests that actual new home sales will follow suit in upcoming reports. Both
    the future sales and “Traffic of prospective homebuyers” marked strikingly large
    declines, a clear sign that the state of the housing market in July continues to be
    very depressed. The regional indexes showed similar weakness, with a notable
    decline in the Midwest. Activity in the Northeast posted a slight uptick in July
    following a large decline in the June figures. In short, this report suggests that
    home sales activity remains very depressed in July.

  14. JC commented on Jul 16

    Why doesn’t SEC’s Chris Cox help the homebuilders like he did the financials and change the shorting rules for them too and give them the benefit of a short squeeze too?

  15. JC commented on Jul 16

    Why doesn’t SEC’s Chris Cox help the homebuilders like he did the financials and change the shorting rules for them too and give them the benefit of a short squeeze too?

  16. ben commented on Jul 16

    To DL, others above,

    I just gott off a conference call with Rich Pzena who manages the John Hancock Classic Value Fund, as well as several other mf’s. Opened the call very excited given the day we had and positions in his fund.

    Here are some observations of the call:

    Also thinks housing is at/near a bottom and that his 40% weighting in financials, with a ~10% overall weighting in Fannie and Freddie should be just fine. He stated this in the context of saying that they generate gobs of net income from conforming loans. Then said, anyone who says they are insolvent are not counting this future income in the numbers.

    He stated that the surplus of home supply will be met but that buyers are just cautious right now… followed this up by stating that it’s easy to qualify for a loan… if you put 20% down. Um no, see the blog BR wrote a few days ago about Median Income vs. Median Home price in an argument to the Barron’s article, how many people in Cali are putting down 20% on those million plus homes, not to mention they still have to get a jumbo @ 8.5% right now, if you can get one.

    My favorite though, which I’m sure you will all like, and it was stated at least 5 times in an hour, was that banks are getting taken down (price of stock) because of lack of confidence, it has nothing to do with the business model, fundamentals, shit paper held by banks, etc etc.

    I can’t wait to see comments on this.

  17. Franklin Raines commented on Jul 16

    Of course it’s not an OFFICIAL recession……..

    I told you there was NOTHING wrong with our accounting practices.

  18. me commented on Jul 16

    Citi still has what, $1.3 BILLION off the books? And they were up today? And BOA/Countyrwide are up today? A couple dollar drop in oil makes people go crazy.

  19. BelowTheCrowd commented on Jul 16

    Ed Leamer of the UCLA Anderson Forecast put together a pretty expansive and detailed analysis of the impact of the real estate business on the economy.

    His conclusion, in a nutshell, is that housing volume delines are an almost-foolproof predictor of recessions. Every recession (even the great depression) was predicted by a downturn in housing volumes. The reasoning is simple: housing volumes drive jobs in construction, financing, sales and everything else, thus the volumes have a real multiplier effect while prices don’t.

    The entire paper is available here: http://www.anderson.ucla.edu/Documents/areas/adm/media/leamer_housing_business_cycle.pdf
    (note this is a 73 page pdf, but is well-worth skimming through)

    If you read through and look at all the charts and numbers, another thing will become obvious though. Volumes precede prices significantly. Look at the chart on page 26 of his paper: In the current downturn (in Los Angeles anyway) volumes peaked in March 2004, but prices continued climbing through the end of 2006. In the last downturn, the bottom in volumes occured in March 1991, but prices didn’t bottom until December 2006, more than a five year lag!

    Historically this is typical. Real estate bottoms are long and drawn out affairs. For those who don’t have a 10 year or longer time horizon they may effectively become “L” bottoms rather than the very wide “U’s” that they really are. So, while it is entirely possible that the worst of the volume declines are behind us and the NAHB will start moving inventory again soon, those who are looking for a rapid bounceback in prices are likely to be disappointed.

    Unfortunately, those pesky mortgage backed securities don’t get moved by real estate volumes. The prices of the underlying assets and the owners’ ability to pay are what drives their value or lack thereof. A recovery in volumes that saves some of the homebuilders may not do the same for the owners of those toxic securities.


  20. BelowTheCrowd commented on Jul 16

    The link to Leamer’s analysis didn’t come through completely because it’s too long.

    It’s linked from today’s entry on my own blog for those who are interested.


    Sorry to hijack the thread. I did think that one was worth looking through even if you can’t be bothered reading every word.

    Incidentally, on page 46 he gives the Fed an “F” for performance since 2000! On page 53-54 he gives a nice bit of prescriptive advice that would have avoided this mess if it were followed.


  21. Bob A commented on Jul 16

    A buddy is throwing in the towel on his house. He is paying $5400 a month in interest only. He could rent for $2500-3000 the equivalent house.

    Remember.. the difference, all of it, is going to be spent on consumer goods intstead of going down the interest-on-depreciating-asset sewer.

    They always have and always will spend 100%+ of what they make.

    In this case they will probably escape from the home with a little extra since they bought in 2005 and still have a little equity.

  22. wunsacon commented on Jul 16

    >> I just gott off a conference call with Rich Pzena

    Ben, thanks, your info is interesting. I interpret Pzena’s reasoning and enthusiasm as evidence the bottom is not yet in.

    Of course, my thinking here might just be a sign of my own confirmation bias. ;-)

  23. Jeff Hollyhand commented on Jul 16

    Among adjustments for other characteristics which affect market prices, it is necessary to pay particular attention to those which are not automatically compensated for by the method used. These are location, time, remaining economic life, and utilities and services included in the rent.


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