Home builders see beginning of slowdown

With home builders concerned that higher interest rates are slowing the nation's housing activity, the National Association of Home Builders' Housing Market Index (HMI) fell four points in June to 58, its lowest monthly reading since November of 1997.

"The HMI has now dropped 13 points since the beginning of this year, and is down 20 points from its peak in December of 1998," said NAHB President Robert L. Mitchell, a home builder from Rockville, Md., in an NAHB press release. "This is likely the beginning of a gradual and expected slowing trend following two years of exceptional strength in the single-family housing market."

Mitchell said that home builders in the Northeast, Midwest and South are registering particular concern about interest rates, while builders in the West have seen fewer ill effects to date.

He noted that the June HMI comes amidst signs of a possible broader economic slowdown, including recent reports of declining private sector employment and retail sales figures.

The HMI is derived from a monthly survey of builders that NAHB has been conducting for nearly 20 years. Home builders are asked to rate current sales of single-family homes and sales expectations for the next six months as "good," "fair" or "poor." They are also asked to rate traffic of prospective buyers as either "high to very high," "average" or "low to very low." Scores for responses to each component are used to calculate a seasonally adjusted overall index, where any number over 50 indicates more builders view sales conditions as good rather than poor.

All three component indexes fell in June from May's revised downward numbers. The most significant drop was recorded by the component gauging present single-family home sales, which fell five points to 64 in June.

The components gauging expected single-family sales in the next six months and traffic of prospective buyers each fell three points in June, to 63 and 43, respectively.

Meanwhile, the Department of Commerce reported June 16 that new home production declined nearly 4 percent to a seasonally adjusted annual rate of 1.59 million units in May.

The decline was entirely due to a 5.4 percent drop-off in single-family housing starts, which hit a rate of 1.25 million units. Meanwhile, multifamily starts rose 2.1 percent to 342,000 units.

Mitchell noted that rates on long-term mortgages in May averaged 8.52 percent, compared to the average 7.43 percent rate on such mortgages in all of 1999.

NAHB is forecasting approximately 1.5 million housing starts for all of 2000, down from 1.67 million starts last year.

Regionally, housing starts were mixed in May, with declines of 8.9 percent and 13.6 percent in the Midwest and West to 339,000 units and 374,000 units, respectively.

The Northeast and South each partially offset significant declines from the previous month, gaining 5.6 percent and 2.8 percent to 151,000 units and 728,000 units, respectively.

The latest housing figures come in the wake of several government reports on retail sales, private sector employment and other sectors that appear to indicate a general economic cooling trend, Mitchell said. Declining permits for both single-family and multifamily dwellings are further indication that building activity is slowing, he added.

Overall housing permits were down for the fourth consecutive month in May, by 4.3 percent to a rate of 1.5 million units. The decline reflected a 2.1 percent drop in single-family permits and a 10.9 percent reduction in multifamily permits.

Every region but one posted declines in permit activity. Permits fell 5 percent in the Northeast, 9.6 percent in the Midwest and 7.7 percent in the West. Virtually no change was recorded in the South.