Homebuilder Confidence Falls to 16-Year Low (January, 1991)

In July, the National Association of Homebuilders' confidence index plummeted to a new low of 24 (consensus 27). The prior low for this cycle was set last month at 28. Sentiment has been declining for the last six months. Prior to that, the index dipped to 30 last September before rebounding to 39 in February. Any reading below 50 indicate poor selling conditions.

Single-family home sales fell to 24 from 29, prospective buyer traffic fell to 19 from 23, and expectations for the next six months dropped to 34 from 39 last month. Over the past year, the decline in the single-family homes sales has been the greatest, falling 19 points.

All regions of the country are showing weakness with the Midwest having the lowest reading at 19 (-1 from prior month), followed by the West and South at 25(-3) and 26(-5). The strongest area is the Northeast at 31 (-5).

Record high levels of inventory and increased cancellations are causing builders to halt new projects, and reduce prices, as losses mount. Higher interest rates and tighter credit conditions are also weighing on the housing market following the problems in subprime mortgages. Residential construction has been in decline for a year and half, cutting GDP growth. Today's survey does not indicate that housing is likely to rebound soon. Most economists expect housing starts to continue to decline through the rest of this year.