The National Association of Home Builders sentiment index for February, reported yesterday dropped sharply to 46 from 56 in January and an average of 51 for 2013. A reading above 50 means more builders view the market as favorably than as unfavorable. Housing permits and starts for January were reported this morning and are also disappointing. Permits were down 5.4% from December overall and down 1.3% for single family homes. Total permits are up compared to January 2013 but single family units are flat. Housing starts were weaker than permits with total starts down 16% from the previous month and off 2% from a year earlier. For single family units, the monthly drop was 15.9% and the year earlier decline was 6.7%. The Mortgage Bankers Association index of mortgages for purchase is down 27% from its peak last May and down 16% from its recent peak on January 10th.
Housing is not about to collapse into another bust, but it is due for a pause after a strong rebound since the first half of 2012. A small portion of the softness may be due to extremely cold and snowy weather in the eastern half of the country. However, some of the weakness is more fundamental. Having led the economy into recovery, albeit later than we would have liked, housing must now depend on gains in income and employment for its next upward leg.
Further indications of housing can be seen in the past stock market performance of the S&P Home Builders Index (the red line) compared to the S&P 500 (the blue line).
More data will be forthcoming this week and next including existing and new home sales and the S&P/Case-Shiller Indices for December next Tuesday morning, February 25th.