SNL: Subprime concerns pull NAHB/Wells Fargo Housing Market Index to lowest level in current cycle

By LaTasha Durrett

Ongoing concerns about subprime-related problems in the mortgage market caused builder confidence about the state of housing demand to decline 3 additional points in May, according to the National Association of Home Builders/Wells Fargo Housing Market Index (HMI), released May 15.

With a current reading of 30, the HMI has now returned to the lowest level in its current cycle, which was previously hit in September 2006.

All three component indexes declined in May. The index gauging current single-family sales slipped 2 points to 31, while the index gauging sales expectations for the next six months fell 3 points to 41 and the index gauging traffic of prospective buyers declined 4 points to 23.

Three out of four regions posted declines in the May HMI.

The Northeast posted a 6-point decline to 32, while the South posted a 4-point decline to 33, and the West posted a 3-point decline to 32. The Midwest managed to gain 1 point to reach 23.

"The crisis in the subprime sector has infected other parts of the mortgage market as well as consumer psychology, and as a result the housing outlook has deteriorated," NAHB Chief Economist David Seiders said in a May 15 news release.

"We're now projecting that home sales and housing production will not begin improving until late this year, and we're expecting the early stages of the subsequent recovery to be quite sluggish. There still are tremendous uncertainties regarding our baseline forecast going forward, owing largely to the subprime crisis that is having widespread effects throughout the mortgage market."

Derived from a monthly survey that NAHB has conducted for 20 years, the HMI gauges builder perceptions of current single-family home sales and sales expectations for the next six months as either "good," "fair" or "poor." Builders also rate traffic of prospective buyers as either "high to very high," "average" or "low to very low." The scores are used to calculate a seasonally adjusted index, where any number over 50 indicates that more builders view sales conditions as good than poor.