Home Builder Confidence Index Falls to Lowest Level Since June

The National Association of Home Builders said Tuesday its Housing Market Index fell again in December to 16, from November's reading of 17 -- the index's lowest level since June.

According to a Bloomberg News survey, economists had expected the index to rise to 18 in December. The index was at 20 in October, after hitting a cycle low of eight in January. The NAHB Housing Market Index measures builder perceptions of current single-family sales conditions, sales expectations for the next six months, and the traffic of prospective buyers. Readings over 50 indicate that more builders view sales conditions as good than poor.
Two of the three components of the index fell in December. The current sales conditions component fell one point to 16; the six-month sales expectations component declined two points to 26; and the component gauging traffic of prospective buyers remained unchanged for a third straight month, at 13.

Housing Sector Stabilization

December's NAHB index dip most likely will not be enough to change the narrative that the U.S. housing sector continues to stabilize. Most economists say the federal government's recently extended and expanded $8,000 income tax credit for home buyers and comparatively low interest rates has played a role in the sector's recovery.

Earlier this fall, Congress passed a revised program which grants an $8,000 income tax credit until April 30, 2010, for first-time buyers, and a $6,500 credit until April 30, 2010, to current owners purchasing a new or existing home between November 7, 2009 and April 30, 2010.

Paul Bishop, National Association of Realtors' vice president of research, made the case that the $8,000 credit is worthy of Congress' effort, from a U.S. GDP growth standpoint.

"Tax incentives, record high affordability conditions and a pent-up demand brought a record share of first-time home buyers into the market," Bishop said, in a statement. "These buyers are critical to housing and a general economic recovery because the market always heals from the bottom up -- they absorb inventory, free existing owners to make a trade and stimulate related goods and services."


Another unexpected decline in the NAHB housing market index, and given the downtrend since June, it can't be considered a blip. That said, given other housing sector indicators that are pointing to stabilization, the calculation here remains tipped in favor of an improving housing sector in 2010. Further, it's not unusual for home builder attitudes to diverge from other indicators. In sum, look for a regionally uneven, bumpy U.S. housing sector recovery in 2010, with the long term view closely tied to household formation gains and job growth.
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