Friday, December 08, 2006

Conflict of Outlook

The latest release of both the National Association of Realtors (NAR) “Real Estate Practitioners Survey” as well as the National Association of Home Builders (NAHB) “NAHB/Wells Fargo Housing Market Index Report” show that, although the industry groups are now simultaneously promoting the notion that the housing market is “stabilizing”, actual practitioners confidence is at record lows and continuing to slip.

Both reports are essentially surveys that ask practitioners to rate, with a fixed scale, their sentiment or outlook given a series of questions. Then the response scores are averaged and a value of 50 marks the threshold between “strong/good” or “weak” conditions.

Probably the most startling aspect of the NAR report is that is shows that with the exception of seller traffic, every measure of sentiment is now down below 50, in some cases way below, indicating that practitioners are currently experiencing significant weakness and continue to expect more in the future.

Perception of seller traffic, on the other hand, has increased 13.6% which when taken together with a 34.6% decrease in buyer traffic, offers some additional evidence that conditions are continuing to deteriorate.

Additionally, 23.9% of NAR respondents predict that home prices will drop in 2007.

The NAHB report also shows that record low sentiment continues to permeate the industry with all three component measures (current single family, future expectations of single family and current buyer traffic) falling high double-digit percentages bringing the current values down to depths only reached during the 1990’s real estate bust.

So it appears that we have a conflict of outlook and sentiment.

On one hand you have the industry groups who are promoting an optimistic “stabilization” view, on the other there are the thousands of industry practitioners who are indicating just the opposite.

The NAR report shows that versus November 2005:

  • Current Sentiment for single family home conditions has dropped 38.7% to 36.7 from 59.5.
  • Future expectations for single family home conditions have dropped 28.4% to 43.3 from 60.5.
  • Current Sentiment for town-home conditions has dropped 37.8% to 30.5 from 49.0.
  • Future expectations for town-home conditions have dropped 32.6% to 33.9 from 50.3.
  • Current Sentiment for condos conditions has dropped 36.9% to 29.8 from 47.2.
  • Future expectations for condos conditions have dropped 33.1% to 32.9 from 49.2.
  • Current traffic of prospective buyers dropped 34.6% to 32.2 from 49.3.
  • Current traffic of prospective sellers increased 13.6% to 61.9 from 53.5.
  • Current Sentiment for Northeast real estate conditions has dropped 36.3% to 27.9 from 43.8.
  • Current Sentiment for Midwest real estate conditions has dropped 30.8% to 29.8 from 43.1.
  • Current Sentiment for South real estate conditions has dropped 25.1% to 46.8 from 62.5.
  • Current Sentiment for West real estate conditions has dropped 53.7% to 36.5 from 78.8.

The NAHB report shows that versus November 2005:

  • Current sentiment for single family home conditions has dropped 50.7% to 33 from 67.
  • Future expectations for single family home conditions have dropped 29.2% to 46 from 65.
  • Current traffic of prospective buyers dropped 43.5% to 26 from 46.

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