Tuesday, February 18, 2014

Home Builder Sentiment Falls Hard

The home builder sentiment index produced by the National Association of Home Builders fell in January 2014 by a whopping ten points, the largest drop in the history of the index.

(Incidentally, the reporter in this CNBC piece is wrong when she says the NAHB/Wells Fargo Housing Market Index or the HMI began in 2006.  It was started in 1985.)

Think of how dramatic this decline was.  Even in 2007-2008 there was not such a loss of confidence so sudden or so hard.

I have been warning readers of this blog for years problems in the home building sector are coming.  The gains since 2008 have been little more than the result of the Fed's easy money policy and cash driven investors---especially Asian investors with money to burn.  There have been no fundamental reforms since the real estate crisis of the industry or the two drivers crippling the industry.

Skilled labor shortages and poor land use laws.

The sentiment will improve in the spring with warmer weather and more retail buyers but the underlying problems remain.  Look for a dead cat bounce in the index by mid-2014.

Instead of reform, we are seeing the return of subprime lending by Wells Fargo, the largest mortgage lender.  Other mortgagees will soon be following suit.