Mixed Results for Residential Construction

Recent reports are showing mixed results for residential construction. The Commerce Department said today that July housing starts were down 1% compared to June. That was a disappointing result after June's 4% rise. Single family home starts were up 1.7%, but again, that was well below the 14% increase recorded in June. Whether you focus on all housing types or single family homes, July's results don't show any significant improvement compared to June.

Yesterday, the National Association of Home Builders released the August edition of its Housing Market Index. The HMI rose by one point compared to July, and now stands at 18. That's the best result since June, 2008, but it's well below anything that could be considered 'normal'. The average level of the HMI over it's 24-year history is 52. Until the current crisis began, it had fallen below 25 only once, for a two-month period during the 1990-91 recession.

The HMI is a confidence index, based on surveys of residential builders. August's result indicates that the outlook among builders is improving, but remains subdued. That's consistent with what most economists are saying about the broad economy.

By the way, it's curious that the 'buyer traffic' component of the HMI came in at 16, while the 'expectations' component came in at 30. If buyer traffic is so light, why are builders expecting the market for new homes to improve anytime soon?