U.S. Home Builder Sentiment in December Backs Away from Record High

• Housing market activity weakens after increasing for seven consecutive months.

• Number of prospective buyers falls from record level.

• Activity in each region declines.

The Composite Housing Market Index from the National Association of Home Builders-Wells Fargo declined 4.4% during December (+13.2% y/y) to 86 and reversed November's increase to a record 90. The monthly decline compared to expectations for a fall to 88 in the INFORMA Global Markets survey. The NAHB figures are seasonally adjusted. Over the past 15 years, there has been a 70% correlation between the y/y change in the home builders index and the y/y change in new plus existing home sales. The figures date back to January 1985.

The index of present sales conditions fell 4.2% to 92 in December. The index level remained 9.5% higher over the last twelve months. The index of expected conditions in the next six months fell 4.5% to 85 but was 7.6% higher y/y. The index measuring traffic of prospective buyers eased 5.2% to 73 (+28.1% y/y) from November's record 77.

Last month's figures were lower across all regions this month. The index for the Northeast fell 3.7% (+32.2% y/y) to 78, down for the second straight month from October's record high of 87. In the West, the index weakened 2.0% (+17.1% y/y) to 96. The index for the South declined 3.3% (13.0% y/y) to 87 and reversed a piece of November's increase. The index for the Midwest eased 3.5% (+12.3% y/y) to 82, off for the second month in the last three. These regional readings date back only to December 2004.

The NAHB has compiled the Housing Market Index since 1985. It reflects survey questions which ask builders to rate sales and sales expectations as "good," "fair" or "poor" and traffic as "very high," "average" or "very low." The figures are diffusion indexes with values over 50 indicating a predominance of "good"/"very high" readings. In constructing the composite index, the weights assigned to the individual index components are: 0.5920 for single-family detached sales, present time, 0.1358 for single-family detached sales, next six months, and 0.2722 for traffic of prospective buyers. These data are included in Haver's SURVEYS database.