A report from Wells Fargo and the National Association of Home Builders (NAHB) reports that confidence amongst homebuilders has plummeted to an all-time low in October.
The housing market index, a measure of builder confidence in the U.S., fell three points to 14, following a downwardly revised reading of 17 in the prior month. The index cited "profound uncertainties" in the outlook.
"This was one area that had been showing some tentative signs of life over the past few months, as prospective buyers, tempted by low prices, dip their toes back into the housing market," said BMO's Jennifer Lee. "Unfortunately, recent developments have clearly caused a rethink."
The index, which consists of three components, has a 22-year history.
The sales expectations index tumbled nine points to 19, while the present housing index for single-family homes fell three point to 13, and the component looking at traffic of prospective buyers fell two points to 12.
A rating above 50 indicates optimism from homebuilders. Since March 2007, the index has fallen from a reading of 36.
Ian Pollick, economics strategist at TD Securities, commented: "This was a terribly weak report and suggests to us that U.S. home prices may still have room to fall before activity begins to pick up."
The latest mortgage averages will provide little solace to homebuilders. According to Bankrate.com, the rate for a 30-year fixed mortgage rose to 6.38% on Thursday, up from 5.87% last week.
Holy Christ, a reading of 14? Here you can see the index for yourself. It looks like most of the index depends on home sales, projected home sales and foot traffic to see homes. Looks like all your variables are strongly correlated without leading or lagging indicators.
Here is a little info on how the index is constructed. I am not saying I could create a better model, but it seems like the current version just measures how good builders feel about the housing market, which is not so good (take a look at the chart).
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