Housing Market Index rises two points in November

The slump in confidence that hit the home building industry immediately following Sept. 11 appears to be easing, according to the National Association of Home Builders' Housing Market Index.

An NAHB news release reports that the monthly HMI rose two points in November. The HMI measures builders' confidence in three key categories current sales, subdivision traffic (numbers of prospective buyers looking at homes) and expectations for future sales over the next six months.

In November, the index rose to 49, up two points from the revised 47 index reading of early October when it reported its single largest monthly drop of nine points.

Good news'

"This is good news for the overall economy," said NAHB President Bruce Smith. "Because of the size and far-reaching effects of new housing production, the housing sector is well positioned not only to cushion the effects of the current economic slowdown but also to lead the economic recovery in 2002."

When combined with housing finance and other real estate-related sectors, housing's share of the economy rises to about 20 percent of the nation's gross domestic product. The release cited the example of the average buyer's spending $6,500 on housing-related furnishings and equipment during the first year of homeownership, which, it said, creates a tremendous ripple effect in terms of jobs and demand for services and products.

The HMI is derived from a monthly survey of builders that NAHB has been conducting for nearly two decades. 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 also are 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 that more builders view sales conditions as good than poor.

Increase in buyers

In November, traffic of prospective buyers increased from 33 to 39, and expectations for sales over the next six months increased by two points, from 55 to 57. Current single-family sales were unchanged at 52.

Smith conceded that the numbers for housing starts and home sales would still decline in the fourth quarter. "We should expect about a 10 to 14 percent decline in housing in the fourth quarter," he added. "The market will flatten out in the first couple of months of 2002 before rebounding into positive growth territory in the second quarter. Historically speaking, this will be a mild and short downturn for housing."

The characteristics of this business cycle are entirely different from previous recessions, Smith added. "Mortgage rates are at their lowest levels in 30 years, and inventories of unsold homes are much lower than they were going into the recessions of the early 1980s and 1990s. Confidence has been the one missing ingredient in the post September 11 market, and it appears we are turning the corner and rebuilding confidence among both consumers and builders."

Decline in starts

The NAHB, in a separate news release, reported that housing starts had declined 1.3 percent in October to a seasonally adjusted annual rate of 1.55 million units. Citing figures released by the Cen-sus Bureau, the NAHB reported that the issuance of building permits also dropped in October, falling by 3.6 percent to an annual rate of 1.47 million units.

"These slight declines actually are re-assuring and indicate that the net effects of the attacks on America in September are not nearly so bad as they might have been," Smith said.

Citing the two-point rise in the NAHB's Housing Market Index, Smith added, "This measure, together with the starts and permits data for October, reinforces our belief that the economy will see a short, shallow recessionary period which will be followed by a rebound in the second quarter of 2002."

Housing investment

Smith added that the investment aspects of housing and low mortgage interest rates have been keys to the housing market's resilience. "With the stock market down significantly and the nation still suffering from the emotional fallout of the September 11 attacks, housing has become an even more attractive investment," he said. "Not only is housing a solid investment that typically shows consistent gains, it contributes greatly to a family's sense of security and well-being."

Smith noted that record low interest rates, a key factor in the housing market's ongoing strength this year, continue to bolster housing activity. "Mortgage interest rates are now about 6.5 percent for a 30-year, fixed-rate mortgage. That's the lowest level in three decades," he said.

Both single- and multifamily starts declined slightly in October. Single-family starts dropped 1.2 percent to a seasonally adjusted annual rate of 1.24 million and multifamily starts dropped 1.6 percent to a rate of 310,000. Single-family permits were off by 2.1 percent while multifamily permits fell by 8.2 percent in October.

Midwest starts

Regionally, new housing starts in-creased by 14.3 percent in the Midwest and 5.3 percent in the Northeast. They were unchanged in the South and declined 16.7 percent in the West. Permit issuance showed a decline in all regions but the Northeast.

"In light of these latest numbers, NAHB's housing forecast appears to be right on target," Smith said. "We expect to see a total of 1.57 million starts this year followed by an equal number of starts next year. This is a solid, healthy production level, and given the demographics of demand, we think the numbers will be even higher in the years ahead."