Home Builder Despair Remains At Elevated Levels

Includes: IYR, PSR, XHB
by: Markos Kaminis

Home builders have been depressed for years now, but the latest data served as a reminder of the long-standing stillness in housing.

Home builders have been in the dumps for what seems like my entire post-pubescence. The reason is obvious, I hope. Besides the disastrous shake-up of our housing finance industry, the remnants of the implosion remain. Excessive under-employment, a guarded lending environment, a flood of distressed properties and underwater homeowners have effectively drowned the real estate market for several years now.

The Housing Market Index’s sad state, though, has a second driver of doom. It’s the fact that the competitive landscape is made up of a great many small to mid-sized builders, most of which were overleveraged at the height of housing. Their sin of greed has since been replaced by despair as a result. So when the guys weigh in, perhaps from a barstool or a street curb, the effect is overwhelming on this index.

September’s reading showed a one point decline to a morbid mark of 14. Imagine that 50 separates positive sentiment from negative, and contemplate just how far down in the dumps builders are. Yet, there’s nothing new in this data. The index has hovered in the rancid range of 13 to 16 for six months now. The National Association of Home Builders (NAHB) Chairman Bob Nielsen, added that the recent economic and market upheaval has only served to drive the few hopeful homebuilders into the pessimistic pool. That fact was illustrated in the index which reflects builders’ views for the next six months, as it fell by 2 points to 17. The measure of current sales conditions dropped by a point to 14, while traffic of prospective buyers was seen lower, with that index down a point to 11.

Regionally speaking, the Northeast and South both saw two point declines (to 15), as the West collapsed three points (to 12). However, there was some good news in the homebuilder view, as the Midwest index improved by a point, to a still clearly terrible absolute level of 11. Also, the NAHB chief said that about a dozen metropolitan areas were showing signs of life.

On net, the HMI report would have contributed nothing to stock market activity this past week, since it was simply as bad as usual. But when market sentiment is overwhelmingly negative, well then it piles on.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.