This week has been filled with disappointing economic releases regarding the state of the housing market.
The National Association of Home Builders (NAHB) Housing Market Index dropped to 36 in its latest release. This is down 1 point from January, and notably below the expected reading of 38. While this move was relatively small, it remains important as any reading below 50 indicates builder pessimism.
In addition to their negative sentiment, home builders are sending a warning about the stability of the housing industry through their use of incentives. In February, 36% of builders cut prices with an average reduction of -6%, and 65% of builders used sales incentives. The use of incentives to encourage sales is a growing trend and has remained above 60% for 11 months. However, this has led to minimal improvement in activity, and trouble in the housing market is not insulated to the home builders.
In fact, Pending Homes Sales for Existing Homes declined -0.8% in January, dropping to the lowest level on record. Pending Home Sales typically lead actual sales by a few months, so a further decline in Existing Home Sales is likely.
Coming on the heels of last week’s dismal Existing Homes Sales release (see Market Insight), these disappointing reports send a concerning signal that the housing market has further to fall and is unlikely to bounce back substantially in the near future.