Home Buyer Demand Shifts Downward — Again

A variety of indicators strongly suggested that the demand for single-family homes had stabilized late last year following a substantial downward correction from the record sales pace (gross and net) recorded during the second half of 2005.

However, more recent signals point toward renewed downward pressure on home sales and renewed upward pressure on sales cancellations.

The NAHB/Wells Fargo Single-Family Housing Market Index (HMI) slipped in April following a similar setback in March, and the HMI now is only marginally above the apparent cyclical low last September.

The March-April slippage was broad-based by geographic region, and all three components indexes (buyer traffic, current sales and expected sales) registered consecutive monthly declines.

NAHB’s proprietary survey of 30 large home builders — accounting for about one-fourth of total for-sale housing in the U.S. — showed a sizeable decline in seasonally adjusted gross home sales in March, and seasonally adjusted cancellation volume spiked upward following a series of monthly declines from the peak last fall.

As a result, seasonally adjusted net sales dropped abruptly in March following an essentially stable pattern that had prevailed since mid-2006.

The government’s data on new home sales (gross) for March, released today, is consistent with the weakening process signaled by NAHB’s survey measures. Sales volume ticked up in March, under good weather conditions, but recovered little of the substantial and weather-related setbacks in January and February. Furthermore, the first-quarter average was down by 14 percent from the final quarter of 2006, constituting an additional down leg following the sharp downward correction during 2006.