Interest Rate Roundup

Wednesday, August 15, 2007

NAHB index drops to new cycle lows

The National Association of Home Builders just released its latest monthly survey of builder sentiment. Here's what the numbers show ...

* The overall index sank to 22 in August from 24 in July. That was below the 23 expected by analysts and the worst reading in any month since January 1991 (when it touched an all-time low of 20).

* All three subindices declined. The index measuring present single-family home sales dropped to 23 from 24. The index measuring expectations for future sales fell to 32 from 34. And the index measuring prospective buyer traffic dropped to 16 from 19.

* Buyer traffic dropped in three out of four regions (the Northeast, Midwest and West). It was unchanged in the South.

The crisis in the housing and mortgage markets is clearly getting worse. More than 110 mortgage lenders have exited parts of the lending business -- or have gone under entirely. Notable recent bankruptcy filings have come from HomeBanc of Atlanta (a company that originated $5.1 billion in mortgages in 2006), Aegis Mortgage of Houston ($17 billion in 2006 volume), and American Home Mortgage of Melville, New York ($58.9 billion in 2006 loan volume).

At the same time, lending standards are tightening in the subprime, Alt-A, and now, jumbo mortgage markets. A just-released Federal Reserve survey showed that a net 56.3% of lenders have tightened standards on subprime mortgages. More than 40% have tightened standards on “nontraditional” loans. The category includes payment-option ARMs, loans to buy investment property, and loans for which the lender doesn’t verify the borrower’s income.

The result? Fewer home buyers will qualify to buy homes. That's clearly impacting home builder sentiment. Unless and until the mortgage markets calm down and the supply of homes for sale falls substantially, the housing market will remain weak.


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