Housing Remains Horribly Hopeless

and Hapless!

This last week offered another status check upon the state of housing, and like what was reported in manufacturing this week, we only found more bad news. The latest two barometers included the important Housing Market Index (HMI) and key monthly Housing Starts.

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Housing Remains Horribly Hopeless

We have taken a different approach to data flow this week, matching like topics in order to serve deeper analysis for more concise reader use. This should help to better clarify the trend in business sectors and economic data segments. In summary, the week's housing market data was profoundly poor, so I pity the reader who seeks to know more. Forgive the corny rhyme brought on by a bout of the flu.

Housing Starts

The Housing Starts Report measures new home construction activity, from permitting, to the start of construction, to completion. The data for October was horrible, with starts falling 11.7% to an annual rate of 519K. Starts were also 1.9% short of the prior year count, which was not a period reflective of boom-time. Many economists look toward single-family starts, a sub-segment of the aggregate starts count, for a more true measure of housing health. In that department activity was a bit better, with segment starts down a lesser 1.1% from September, at 436K.

When Starts are down so much, a rise in Building Permits offers some solace. Indeed, this occurred in October, with Building Permits rising 0.5% to an annual rate of 550K. Still, even permitting activity was 4.5% below the prior year period. Single family home authorizations measured a similar 1.0% above September. Housing Completions ran at a rate of 613K, down 3.2% from September's pace and 18.4% below last year's level.

Regionally speaking, strength was only found in the Northeast, where starts jumped 12.9% over September. That said, building permitting activity was flat in the nation's heavily populated region. The Midwest region's starts rose 1.0% over September, but permitting activity was robust, as the region marked a 14.3% increase there.

The South region of the nation saw Starts fall 13.4%, while permits slipped 3.4%. It appears the Governator is leaving a mess behind, as the West experienced a precipitous 30.5% plummet in Starts and a 0.9% dip in permits. Indeed, we have taken note of voices sounding concern about the potential for further sharp decline in Western home prices.

Housing Market Index (HMI)

Homebuilder confidence, as measured by the HMI, is reflective of the housing starts slippage in October due to the low mark it recorded. Still, the HMI also holds a whiff of hope, which would be a reflection of the gain in housing permitting activity reported above.

The National Association of Home Builders' (NAHB) Housing Market Index gained a point, rising to a mark of 16 in November. However, the latest month's reading could only be called a gain due to a one point downward revision to October's tally, to 15. Furthermore, allow me remind you now that it takes a reading of 50 on the HMI to mark a majority of homebuilders holding a positive outlook.

The best homebuilders could say was that while traffic had not increased, the quality of traffic seemed to intensify. That is a weak statement that cannot hold true across the board of the nation's contractors. The component of the HMI that gauges the traffic of prospective buyers rose one point in October to 12, which is still horribly weak. Apparently homebuilders see a different seriousness about the intentions of those perusing through sample homes. This would perhaps be a sign that Americans are sensing a bottom to home prices, but as we have been outlining here, prices have started into double-dip direction. Thus, this new found "seriousness" might quickly disappear.

Meanwhile, homebuilders remain concerned about banks' sincerity in making funds available to prospective home buyers in today's marketplace. That fear might be alleviated if homebuilders themselves could find financing to build new homes, which they cannot, even despite the thin inventory of available finished construction.

The NAHB reports that homebuilders still believe things will improve in the months ahead. The component of the HMI that gauges sales expectations for the next six months rose two points to 25 in October.

Regionally speaking, the Northeast was the sole segment to post a decline in its HMI score in November, with a three-point fall to 13. The Midwest posted a five-point gain to 18, while the West posted a three-point gain to 15 and the South stuck at 18.

In conclusion, based on these latest two data points, it is clear to us that housing remains in a horribly hopeless state.



Editor's Note: Article should interest investors in Bank of America (NYSE: BAC), Freddie Mac (OTC: FMCC.OB), Fannie Mae (OTC: FNMA.OB), Goldman Sachs (NYSE: GS), Morgan Stanley (NYSE: MS), Wells Fargo (NYSE: WFC), Toronto Dominion (NYSE: TD), UltraShort Real Estate ProShares (NYSE: SRS), Ultra Real Estate ProShares (NYSE: URE), ING Clarion Global Real Estate Income Fund (NYSE: IGR), Xinyuan Real Estate Co. (NYSE: XIN), Rydex Real Estate Fund H (Nasdaq: RYHRX), T. Rowe Price Real Estate Fund (Nasdaq: TRREX), Toll Brothers (NYSE: TOL), Hovnanian (NYSE: HOV), D.R. Horton (NYSE: DHI), Beazer Homes (NYSE: BZH), Lennar (NYSE: LEN), K.B. Homes (NYSE: KBH), Pulte Homes (NYSE: PHM), NVR Inc. (NYSE: NVR), Gafisa SA (NYSE: GFA), MDC Holdings (NYSE: MDC), Ryland Group (NYSE: RYL), Meritage Homes (NYSE: MTH), Brookfield Homes (NYSE: BHS), Standard Pacific (NYSE: SPF), M/I Homes (NYSE: MHO), Orleans Homebuilders (AMEX: OHB), Vanguard REIT Index ETF (NYSE: VNQ), PNC Bank (NYSE: PNC), J.P. Morgan Chase (NYSE: JPM), Hooker Furniture (Nasdaq: HOFT), Ethan Allen (NYSE: ETH), Pier 1 Imports (NYSE: PIR), Williams Sonoma (NYSE: WSM), Home Depot (NYSE: HD), Lowes (NYSE: LOW), AMEX: VAZ, AMEX: NKR, AMEX: MZA, AMEX: NXE, AMEX: NFZ, Nasdaq: XNFZX, Nasdaq: FSAZX, Avatar Holdings (Nasdaq: AVTR), Apartment Investment & Management (NYSE: AIV), Equity Residential (NYSE: EQR), Avalonbay Communities (NYSE: AVB), UDR Inc. (NYSE: UDR), Essex Property Trust (NYSE: ESS), Camden Property Trust (NYSE: CPT), Senior Housing Properties (NYSE: SNH), BRE Properties (NYSE: BRE), Home Properties (NYSE: HME), Mid-America Apartment (NYSE: MAA), Equity Lifestyle Properties (NYSE: ELS), American Campus Communities (NYSE: ACC), Colonial Properties (NYSE: CLP), American Capital Agency (Nasdaq: AGNC), Sun Communities (NYSE: SUI), Associated Estates (NYSE: AEC), PennyMac Mortgage (NYSE: PMT), Two Harbors (AMEX: TWO).

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